Bitcoin has been consolidating since mid-January (green rectangle). However, there was a strong impulse down before the consolidation, with bitcoin dropping close to 42% since its high of $68,966. This weakness suggests that the current consolidation may be a continuation pattern. In this regard, we note that the triple simple moving averages are bearish. The fast green SMA is below the orange medium SMA, and the medium orange SMA is below the long red SMA. However, the red SMA has not turned down (blue arrow). If it does, it is a bearish development.
Simple moving averages are trend-following indicators. This is why they have led to whipsaw signals since January on the daily chart. I.e. they are prone to false signals in a consolidation. A breakdown is expected to follow if the weekly pattern is a continuation pattern. In this regard, the trend-following indicators may be helpful if a trend develops. I.e. if the daily green fast, medium orange, and red slow SMAs create angle and separation to the downside (black ellipse), it may signal that the pattern has resolved. This resolution, in turn, will lead to the weekly red SMA turning down. However, if the daily SMAs continue to whipsaw, the weekly continuation pattern hypotheses will need to be reexamined.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.