Last night, we talked about the fact that the “sell the news” pressure following the highly anticipated “halving” event for Bitcoin had backed the cryptocurrency into a technical corner.
If you missed it, take a look here.
This morning, to no surprise, Bitcoin and its associated exchange-traded funds (ETFs) are trading lower by more than 5% leaving many investors asking, “is it time to buy the Bitcoin dip?
The answer is a simple “no.”
Let’s break down three of Bitcoin’s current charts to determine when the next solid “buy the dip” opportunity sits using three simple charts.
From a four-to-six-week perspective, Bitcoin just entered a bearish trading pattern. The easiest way to see the shift in this is to look at the 20- and 50-day moving averages in the chart below.
Bitcoin has struggled with trying to break above $70,000 since the beginning of March. The overhead resistance from that price level led to the cryptocurrency trading in a relatively tight trading range.
The result of that trading range was a leveling of Bitcoin’s 20- and 50-day trendlines, ultimately resulting in the faster-moving 20-day moving average crossing below the 50-day.
That pattern alone is a signal that a stock, index or in this case, cryptocurrency has seen its momentum shift to bearish.
In addition to bearish momentum, Bitcoin triggered what I refer to as a “volatility surge” today as it broke through its lower Bollinger Band. The chart below identifies the moment this happened.
Bollinger Bands are a technical tool used to determine when a security is seeing increased volatility. In this case, the break of Bitcoin’s lower Bollinger Band tells us that the volatility is based on selling.
That selling along with the bearish momentum is a classic sign that even more sellers are going to push prices lower as fear takes over as the dominant emotion.
We know from the two charts above that the path of least resistance for Bitcoin is lower for now, leaving us asking “where do I buy the dip?” That’s where the third chart comes in.
Our final chart focuses on a longer moving average - Bitcoin’s 200-day – along with a psychologically significant price.
Bitcoin’s 200-day moving average is currently hovering at $49,320, less than 2% below $50,000. This “double barrel support” draws the line where the “buy the dip” opportunity sits.
First, unlike the 20- and 50-day moving averages, the 200-day moving average remains in a bullish trend as its trend is ascending. That fact alone will attract buyers and technical algorithms to increase their buying of Bitcoin.
Second, the psychological power of the round-numbered $50,000 price will also increase buying interest at that price.
It is extremely common to see stocks, indices, ETFs, and other assets find support and resistance at large round numbers. The larger the number the more weight it has with investors and $50,000 is a big number.
That double barreled support at $50,000 is the first buying target for Bitcoin. A break below that price for more than a few days will begin to redraw the charts and a new price target for the popular cryptocurrency.
The four-to-six-week bearish outlook along with the $50,000 target suggests that aggressive traders have an opportunity to profit from the 13% downside move.
The easiest way to position for this is to use an inverse Bitcoin ETF like the ProShares Short Bitcoin Strategy ETF (BITI). The ETF returns approximately 1% for every -1% move in Bitcoin. Keep in mind that this ETF is meant for short-term holding periods.
More aggressive traders may choose to trade call options on the BITI shares. The ability of an option to provide leveraged returns makes this an attractive alternative for those well-versed in options trading.
Finally, those looking to just take advantage of buying the dip may consider simply using a good-til-cancelled limit order to buy the ARK 21Shares Bitcoin ETF (ARKB) at $50. That $50 price correlates closely with the $50,000 price target for actual Bitcoin.
