Bitcoin (BTC) has been trapped under a few important moving averages for most of the 2018 bear market. These Moving Averages have mostly been acting as resistance. To start a new bull trend and ward off more bear, we need to turn these resistances into supports.
First off, in the image above I show the 50, 100, and 200 day EMAs as resistance for Bitcoin on a daily chart. These are hardly the only Moving Averages worth looking at (the 12 and 26 are very useful), this is hardly the only time frame to look at, and this is hardly the only way to look at Bitcoin in general, but I think this frame works well to tell the story the 2018 bear market. So let’s look at it this way.
You can see how the price action has generally been stuck under the 200 day EMA since the drop in May (with a false breakout in late July).
This 200 day EMA is arguably the number one barrier between going up again or not (the 200 day SMA acted as resistance in May for too; I can’t cover everything here, you can see that one and others for yourself on a BTC chart by playing around with indicators).
The gist of the 200 covered, the 50 day and 100 day are just as important in the story of the 2018 bear.
You can see that the trouble all started when the 50 day “death” crossed down over the 100 in January.
You can also see:
- The failure to cross back before the March crash.
- A bullish cross of the 50 over the 100 and 200 in May that failed when the price dropped below all the EMAs resulting in a number of death crosses and the May crash.
- An almost fractal of the May crash in late July / early August.
Specific cases aside, you should generally be able to see how these EMAs are constantly acting as support and resistance.
Notice how often the price sits under the 50 day EMAs on daily candles in a bear trend? Notice how things quickly turn bearish or bullish when the price crosses over or under these EMAs when the trend changes?
The problem is that in this speculative market of crypto, where everything follows Bitcoin and where Bitcoin is controlled by traders and algorithms, and where traders and algorithms use EMAs, and where the bears and bulls know just where to “pump” and/or “dump” to exploit that…. it is really hard to escape the gravity of these EMAs!
Given all of this, we are likely to be stuck in a bear market unless the bulls can make a clean break and start forming either a long sideways trend or an uptrend.
The logic being 1. a sideways trend brings the EMAs down slowly and makes an uptrend later easier (and they also establish horizontal support, that hopefully doesn’t become resistance later, by letting the price action consolidate at a given range), and 2. an uptrend solves all the problems of these EMAs by moving far enough above them that they aren’t an ever present threat anymore.
Lastly, as to what constitutes a proper trend reversal, that is rather murky. But I would say:
To confirm a bull trend we have to at least see a cross up of the 50 over 100 and 200 and ideally see the 100 cross over the 200.
And, to confirm a bull trend BTC needs to generally be treating these EMAs as supports (specifically the 200, if that can become testable and verified support, it would be insanely bullish). BTC can’t simply fail every time it comes down to touch an EMA (that is what is forming these little volcanos essentially). BTC needs to get above the EMAs, come down and touch them without causing a sell-off, and then continue up…. like it did in 2016 and 2017.
Until all those stars align, bears will continue to dump countless coins on the market at key levels to force price back down, and this will set off algos and traders to initiate profit taking. This at best leaves us stuck in a range and at worst leaves us weak kneed and ready for capitulation.
The situation is hardly dire at the current moment given BTC’s tightening range over the past few months (as opposed to steep downtrend with no breakouts), but without a big positive or negative event to drive investors in or out of crypto, we will be stuck in a traders market.
And in a traders market, these EMAs matter… as you can see on the chart.