Bitcoin bulls should be on their toes: A key momentum indicator that has been disturbingly accurate in marking selling since the largest cryptocurrency hit record highs in October has just been triggered.
The indicator is the moving average convergence divergence histogram, better known as MACD. It has just crossed below zero for the third time, indicating a renewed bearish shift in momentum.
What is MACD anyway?
Before we dive into the market signal, let’s see how MACD works.
The indicator uses two lines. The first is the MACD line, calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. The gap between the two helps indicate momentum.
The second is the signal line, which is the nine-day exponential moving average of the MACD line itself.
The really interesting part though is the histogram. It plots the difference between the MACD and signal lines.
When the histogram turns positive, it signals bullish momentum; when it turns negative, like now, it signals bearish momentum. In both cases, the steepness of the slope indicates how strong the momentum is.
The indicator is popular because it cuts through market noise to provide a clear picture of trend strength and changes. And right now it screams “bearish”.
BTC gets crushed when MACD turns red
Since bitcoin peaked above $126,000 in October, the MACD has developed a nearly perfect track record. When it turned bearish, bitcoin crashed hard. When it turned bullish, there were weak rejections that went nowhere.
The evidence is damning. Bitcoin’s week-long back-and-forth trade above $100,000 came to an abrupt end after the histogram crossed below zero on November 3. Prices fell from around $106,000 to $80,000 on November 21.
A brief bounce followed as the MACD turned positive. But it was short-lived. Just two months later, on January 20, the MACD flashed bearish again with bitcoin around $90,000. The result was the same as before – a face-searing drop to nearly $60,000 on February 6, once again followed by a minor bounce, backed by a positive MACD with an upside around $75,000.
So far, each bullish MACD cross has produced nothing but disappointing rejections that quickly fade, paving the way for deeper selling when the indicator turns red. It is a strong signal that the sellers are firmly in control, able to crush any attempt by the bulls to regain momentum.
And now the indicator flashes red again. Sure, past results don’t guarantee future results. But when a signal with such a strong track record flashes red, traders are better off paying attention than throwing caution to the wind. Bitcoin’s resilience during the war with Iran may be crumbling.
