The heading of this article must have offended Bitcoin fanatics and enthusiasts who have made money on this bull run and are being tempted into believing that the next price target will be $400 or $500. While I do not deny the possibility that Bitcoin may cross these levels, I wish to advise caution to all the Bitcoin longs that things may turn ugly very soon. The traders may benefit by exiting all their long positions and building fresh short positions.
What’s my basis for being a contrarian in this bull market? Four major technical considerations are telling that the cryptocurrency is increasingly becoming a stronger short candidate.
Let us discuss each of them below. I have presented the weekly BTC-USD price chart and found some disturbing trends and divergences, which will help in making better trading decisions and avoiding unwanted losses.
- Trading Channel Ceiling – Since the start of 2015, Bitcoin has been trading in a wide range (marked as the two red lines), and can now be seen approaching the strong resistance near $335. Breaking past this hurdle will be a huge task for the bulls, and they will have to battle severe selling pressure near this level.
- Bollinger Bands – Bitcoin is already above the upper range of the BB, which generally acts as a strong limiting factor. Trading above the upper range of the BB is usually short-lived.
- Money Flow Index – This is a major disturbing divergence. While the Bitcoin price has been curving upwards, the MFI has been falling in a steady downtrend. A falling MFI when the price is rising usually signals a trap formation.
- Relative Strength Index – Another technical indication that says Bitcoin may be getting overtly heated and there is only limited room for more gains is the 14-week RSI reading of 64.3085. Readings above 70 represent overbought conditions and attract selling pressure.
Bitcoin has become too risky a cryptocurrency now to invest in. I would recommend sitting on the sidelines to those who haven’t invested already, and profit booking to the long holders. Wait for the market to cool off or risk falling into this trap!