Bitcoin price holds above $ 5k amid the widespread stock market decline
On Tuesday, March 16, the price of bitcoin was above the level of $ 5000, while the US stock market saw its worst day since 1987. Traditional markets closed 13% lower than the day before, but the main cryptocurrency calmly continued its lateral movement.
The price of bitcoin moves inside a narrow channel, limited by resistance at the level of $ 5600- $ 5750 and support around $ 4800- $ 4900.
The 4-hour chart shows a clear bullish divergence, which implies the formation of the bottom in the short term and the impulsive price increase. However, for the formation of a trend reversal, a similar divergence should appear on older timeframes, that is, on the daily chart. Another sign of an imminent reversal may be testing lower levels and the formation of a double bottom on low timeframes.
Recently, there has been a massive sale on the stock market, which leads to the fact that the index of fear and greed has reached an extreme value. Traders and investors are already comparing the recent collapse with the legendary market corrections that took place in 1929, 1987 and 2000.
There is a sale of shares at a discount of 30-40%, with individual shares falling by about 70%.
History knows such landslides. Coronavirus, of course, is a unique case, however, markets tend to move according to a certain pattern, which is associated with human psychology.
When the bubbles burst, the initial drop is usually between 35-50%, after which a rebound is observed. This bounce is often called the “dead cat jump” or the “bull trap” that makes investors believe that everything is working out.
Historical data show similar movements. During the 2000 Dot.com bubble, the Nasdaq 100 index fell 40%, after which an upward momentum was observed for 3-4 months.
In January 2018, Bitcoin showed a similar drop immediately after its bubble burst in December 2017. The price fell from $ 19700 to $ 10800, which corresponds to a decrease of 45% from the beginning of the year. After that, bitcoin rose from $ 10800 to $ 17000 before the bearish trend continued.
Since the stock market already has a sale within 30-40% and a bearish bearish momentum is observed, it will not be surprising if a rebound occurs in the coming weeks. Such short-term growth in the stock market will allow the cryptocurrency market to turn green.
This assumption is supported by the fact that recently all markets have shown a positive correlation with each other. Gold and bitcoin fell significantly, due to the fact that investors sought liquidity in order to cover losses in the stock market.
Of course, all this does not prove that the cryptocurrency market has reached its bottom. However, bullish divergence allows us to expect a short-term rally, the main objectives of which will be the levels of $ 5600- $ 5800 and $ 6000-6100. If these zones are not overcome, then we should expect to test of the lower support levels located in the region of $ 4800, $ 4200 or even $ 3750.
Bottom formation takes time, and in the current economic instability, it is impossible to predict how long this period will last and when the coronavirus will eventually leave the stage.