Both bitcoin and the U.S. stock markets are staring at a “death cross” – a widely tracked, bearish chart indicator – having suffered sharp losses over the last five weeks.
For bitcoin, the pattern is arising as the 50-day moving average (MA) moves to cross below the 200-day (MA), likely in the next day or two. If confirmed, it would be the first death cross since Oct. 26, 2019, according to Bitstamp data.
Meanwhile, similar crosses are forming on Wall Street equity indices, the Dow Jones Industrial Average (DJIA) and the S&P 500.
The death cross is a long-term bear market signal, according to technical analysis theory. Despite the scary name, it’s based on backward-looking moving average data and is the product of a recent notable price drop.
For example, the impending bitcoin death cross is preceded by the decline from $10,500 to $4,000 in the four weeks to March 13. The massive sell-off has caused the 50-day average to turn lower and drop to the 200-day average.
Bitcoin and Dow Jones crosses
Similarly, the Dow Jones has tanked by more than 35 percent over the last five weeks and is likely to witness its death cross on Monday.
It should be noted that, as a lagging indicator, the death cross often traps sellers on the wrong side of the market, as seen on the historical bitcoin chart below.
As the averages closed in on the death cross on Oct. 25, 2019, the cryptocurrency picked up a strong bid and rose from $6,500 to $10,350 in less than 48 hours.
Another such cross, confirmed at the end of March 2018 was followed by a rise from $6,500 to $9,950.
That said, with the global markets still in panic mode courtesy of the coronavirus outbreak, the latest death cross may not turn out to be a contrary indicator. Amid fears of a recession, investors are treating bitcoin as a source of liquidity rather than a safe haven, as had been anticipated by many.
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