I have tracked countless securities -- stocks, bonds, currencies, commodities -- over the past 60 years (I started reading The Wall Street Journal when I was 10), but bitcoin may be the most interesting. Let's check out two charts for any technical clues that suggest danger ahead.
In this daily Japanese candlestick chart of the nearby CME futures contract, below, we can see that prices were up 11-fold from their low in March of last year. Futures are trading above the rising 50-day moving average line but they were more than twice the level of the rising 200-day moving average line. Two times the 200-day average is considered by many chart watchers as being overbought or extended (many of the books published by the late Joseph Granville take up a fair amount of my office book shelf). Trading volume declined from the January peak to the February peak. Also, notice how the On-Balance-Volume (OBV) line has made a bearish divergence from January to February with roughly equal highs while prices made higher highs. Now look at the 12-day price momentum study, which shows equal momentum highs in January and February even though prices made higher peaks; this is another bearish divergence.
In this daily Japanese candlestick chart of the Grayscale Bitcoin Trust ( GBTC) , below, we can see that prices are testing the rising 50-day moving average line. Prices are also extended when compared to the 200-day average. The OBV line shows a slightly lower high in February than in January for a bearish divergence. The Moving Average Convergence Divergence (MACD) oscillator shows equal highs in January and February and that, too, is a bearish divergence when compared to prices making higher highs.
Bottom line strategy: I anticipate I will get several less-than-friendly emails and tweets. from loyal bitcoin holders. I am used to it from countless presentations to financial advisers since the 1990s. Plenty of pushback to unpopular calls. For me, the risks of being long bitcoin and probably all cryptocurrencies are too high right now. Avoid them.
