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Bitcoin Market Testing Signals of Declining Investor Sentiment

The bitcoin market is currently facing a number of technical headwinds, including a likely retest of a critical support level and a cross below a key long term moving average.

Key Support Test

The low 90s have proven to be strong support for downward pressure over the past three months. That level first served as the inflection point for the final run-up before bitcoin peaked at $266/BTC. Since then, the low 90s has served as support for downward price action, accompanied by outsized volume, indicating a key technical level. Downward pressure towards that level has been increasing since it was first tested in early May, signaled by decreasing highs after every retest. Currently at $95, it is again about to teset this important region.

95 support annotated2

Old Support Becomes Resistance

Also indicating a shift towards negative investor sentiment is the downward break of the 100-day moving average. Previously serving as support during major negative movements, the 100-day MA was broken on June 9 for the first time since October 2012. It was subsequently retested upwards, proving to now be a resistance and further strengthening the signal of negative sentiment.

100 day log annotated2

Positive Trend in Jeopardy

Looking forward, we expect to see increased volume again if the low 90s are retested. One more indicator is also on the horizon: bitcoin has traded to a higher monthly low for the past 16 months. The June low was at $88/BTC, breaking that would signal a significant trend reversal.

2 year high low.xlsx at 2.13.20 PM

This is further compounded by a lack of expected market reaction to positive fundaments over the last few weeks. Mt. Gox indicated progress towards regulatory compliance by filing for status as an MSB. Germany clarified that bitcoin is included in existing regulation that there are no taxes on investments held over a year. Regardless of these developments, the market has continued the downward triangle pattern described above. Breaking through the low 90s would signal an increased probability of significant negative price action.

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