After reaching 50,000 dollars last August 23, Bitcoin pulled back to as low as 47,600 the following day. Most alts followed the crypto big daddy and dropped too. This is the fourth time BTC pulled back to its 10-day EMA since its rally last July 21. Multiple bearish divergences on the daily are now evident on its chart as well as in other majors.
Bearish divergences occur when the price of an asset reaches higher highs but a technical indicator creates lower highs. A commonly used technical indicator in monitoring divergences is RSI. A bearish divergence with RSI may indicate that price acceleration is weakening possibly due to less buyers as the price inches up.
For Bitcoin, bearish divergences at the DAILY timeframe have been indicative of an upcoming consolidation or correction. Take for instance this chart of BTC from March 2019 to September 2020. During this period, all bearish divergences in BTC were followed by corrections or consolidations that lasted for weeks to months.
This, however, does not happen 100% of the time as seen last November 2020. The multiple bearish divergences formed from November to late December were invalidated by a strong uptrend that lasted for five months. That rarely happens, though.
It should be emphasized that only divergences that occur at the DAILY timeframe at the LEAST were considered in this analysis. This is because the crypto market is highly volatile. Thus, intraday divergences occur frequently which can prematurely shake one out of a position. Furthermore, this analysis is a short to medium term analysis of the market.
As of now, among the top 20 cryptos by market cap, daily bearish divergences are now present in Bitcoin, Ethereum, Matic, Ada, Litecoin and Luna. This may suggest a maturing rally for the crypto space. Aside from bear divs, most coins are about to hit major resistances. It may not yet be the time to sell but traders should add to positions more cautiously at this time.
Disclaimer: This is not a financial advice. This post is meant for educational purposes only. DYOR.