bitcoin Bulls should be alert: a key momentum indicator has just activated that has been eerily accurate in signaling sell-offs since the largest cryptocurrency hit an all-time high in October.
The indicator is the moving average convergence and divergence histogram, better known as MACD. It 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 the 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 other is the signal line, which is the nine-day exponential moving average of the MACD line itself.
However, the really interesting part is the histogram. That plots the difference between the MACD and signal lines.
When the histogram turns positive, it indicates bullish momentum; when it turns negative, like now, it indicates bearish momentum. In both cases, the steepness of the slope indicates how strong the impulse is.
The indicator is popular because it eliminates market noise to provide a clear picture of trend strength and changes. And right now, he’s screaming “bassist.”
BTC Gets Crushed as MACD Turns Red
Since bitcoin surpassed $126,000 in October, the MACD has developed a near-perfect track record. When it turned bearish, bitcoin plummeted hard. When it turned bullish, there were weak bounces that went nowhere.
The evidence is damning. Bitcoin’s weeks of back and forth above $100,000 came to an abrupt end after the histogram crossed below zero on November 3. Prices plummeted from around $106,000 to $80,000 on November 21.
A brief bounce followed, as the MACD turned positive. But it didn’t last long. Just two months later, on January 20, the MACD again showed a downward trend and bitcoin was around $90,000. The result was the same as before: a heartbreaking drop to almost $60,000 by February 6, followed once again by a minor bounce, supported by a positive MACD with an upside stop around $75,000.
So far, each MACD bullish crossover has produced nothing but disappointing bounces that quickly fade, paving the way for deeper sell-offs once the indicator turns red. It is a strong sign that sellers are firmly in control, capable of crushing any attempts by the bulls to regain momentum.
And now, the indicator flashes red again. Of course, past performance does not guarantee future results. But when a signal with such a strong track record flashes red, traders had better pay attention than throw caution to the wind. Bitcoin’s resistance during the war with Iran may be about to crumble.
