Bitcoin's (BTC) recent technical failure at key price resistance has raised the risk of a deeper pullback, according to analysts studying price charts.
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The leading cryptocurrency's upswing has recently stalled, with prices failing to crack resistance at $25,200, which capped the August bounce.
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"Bitcoin has been unable to break out above trading range resistance near $25.2K, resulting in a whipsaw lower for the daily MACD," Katie Stockton, founder and managing partner at Fairlead Strategies, said in a note to clients on Monday. The MACD histogram is an indicator used to gauge trend strength and trend changes. "Given the MACD 'sell' signal, and with room to oversold levels per the daily stochastics, we shift to a bearish short-term bias."
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Stockton expects bitcoin to revisit $20,000 after brief stabilization around the 50-day simple moving average, currently at $22,567. At press time, bitcoin was changing hands near $23,500.
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The MACD histogram has recently dropped below zero, indicating a bearish shift in momentum. Aficionados of technical analysis consider MACD's bearish shift to be a sell signal.
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Meanwhile, the stochastic indicator, used to gauge overbought and oversold conditions, is yet to fall below 30, implying room for price declines. A reading below 30 indicates an asset is oversold and usually marks an end to price drops.
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According to Alex Kuptsikevich, senior market analyst at FxPro, bitcoin's weekly chart also favors a deeper pullback.
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"Technically, bitcoin is selling off after touching its 200-week moving average. And due to the negative momentum at the end of the week, it has also fallen below the 50-week moving average. This dynamic may be a prologue to further declines, a predictable tug-of-war near trend levels," Kuptsikevich said in an email on Monday.
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Bitcoin has turned lower from the 200-week simple moving average (SMA) after facing rejection above the same for two consecutive weeks.
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The 50-week SMA has dropped below the 200-week SMA, producing what is known as the "death cross," a bearish development.
However, the expected price decline would be a temporary bull breather, according to Kuptsikevich.
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"A pullback in bitcoin to $21.5K would remain a correction within a bull market, but a sharp drop below that level could force a reassessment of whether we are out of a bear market," Kuptsikevich said.
