Bitcoin Bulls should be wary: A key momentum indicator has just triggered that has been disturbingly accurate in detecting sell-off weakness since the largest cryptocurrency hit all-time highs in October.
This indicator is the Moving Average Convergence Divergence Histogram, or MACD. It just fell below zero for the third time, signaling another bearish shift in momentum.
What exactly is MACD?
Before we delve into market signals, let’s take a look at how the MACD works.
This indicator uses two lines. The first is the MACD line, calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day exponential moving average (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.
The really interesting part, though, is the histogram. It plots the difference between the MACD line and the signal line.
When the histogram turns positive, it signals bullish momentum; when it turns negative, like it does now, it signals bearish momentum. In both cases, the steepness of the slope indicates how strong the momentum is.
This indicator is popular because it cuts through market noise and provides a clear picture of trend strength and changes. And now, it’s screaming “bearish.”
BTC will be crushed when MACD turns red
Since Bitcoin topped $126,000 in October, the MACD has set a near-perfect record. When it turned bearish, Bitcoin plunged. When it turns bullish, there is a weak bounce that goes nowhere.
The evidence is conclusive. Bitcoin’s weeks-long back-and-forth trade above $100,000 came to an abrupt end after the histogram fell below zero on November 3. By November 21, the price plummeted from around $106,000 to $80,000.
A brief rebound followed as the MACD turned positive. But this was short-lived. Just two months later, on January 20, the MACD turned bearish again and Bitcoin price was around $90,000. The result was the same as before – by February 6, the price fell sharply to almost $60,000, before rebounding slightly again, supported by a positive MACD, with the upside capped at around $75,000.
Every bullish MACD crossover so far has produced only disappointing rallies that quickly fade, paving the way for a deeper sell-off once the indicator turns red. This is a strong signal that sellers are firmly in control of the situation and have the ability to crush any attempts by bulls to regain momentum.
And now, the light is flashing red again. Of course, past performance is no guarantee of future results. But when a signal with such a strong track record flashes red, traders are better off remaining vigilant than throwing caution to the wind. Bitcoin’s resilience during war with Iran may be about to collapse.