The crypto markets are currently held tight in the grasp of the bears. At the moment, there does not seem to be any specific news or event that has triggered the strong decline but one possibility is that some short-term investors who had been holding on to their positions in hopes of a rally are dumping at the current prices.
The announcement of the first phase of a trade deal between China and the United States and the likelihood of the US Fed will not raise rates in 2020 appears to have boosted sentiment in the US stock market which are again close to reaching new all-time highs. Hence, it’s possible that some money might flow out of crypto and into the stock markets.
This selling in cryptocurrencies is likely to finish within the next few days after which, the long-term investors who had been waiting on the sidelines to build up positions are likely to start value buying. Bitcoin also appears to be in the early stages of a bottoming process and the price action is similar to 2018 when it had bottomed out in mid-December.
After such a sharp fall, most cryptocurrencies are likely to go through a bottoming process before starting a new uptrend. Fresh allocations to the crypto space might happen early next year but larger players are unlikely to buy in a hurry. They would try to accumulate at attractive prices before pushing prices higher. Hence, retail traders would have to ride out the volatility before a new uptrend starts.
While short-term traders can trade the relief rallies in a downtrend, positional traders should wait for the trend to change from down to up before buying. Let’s look at the important levels to watch out for.
Bitcoin (BTC) is currently attempting to bounce off the critical support at $6,512.01. The developing bullish divergence on the RSI is a minor positive which indicates that the selling is about to end. However, unless the price shows signs of sustaining the relief rally, we do not suggest buying on this setup alone.
The bulls will now attempt to push the price above the 20-day EMA. This is an important resistance to watch out for because the BTC/USD pair has not closed (UTC time) above the 20-day EMA since Nov. 15.
If the bulls manage a close (UTC time) above the 20-day EMA, it will indicate buying by the aggressive bulls. Above the 20-day EMA, a move to $7,856.76 is possible. Aggressive traders can attempt to trade this move but should keep a small position size because the trend is still down. For the positional traders, we will wait for the price to breakout and close (UTC time) above $7,856.76 before recommending a trade in it.
Contrary to our assumption, if the price turns down from the 20-day EMA, the bears will attempt to resume the downtrend. Below $6,512.01, the next support is at $5,533.90.
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