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Today’s Trading Edge: A Death Cross on Bitcoin May Signal a Slump to $450

Posted by Edward Moya on Feb 18, 2014 11:23:00 AM

WWM BITCOIN FEB 18 2014

 

After the Lehman collapse, the European debt crisis, gold’s 38% correction from its record high, political turmoil in emerging markets and the Middle East; global investors are looking for alternative investments, and some are considering bitcoin.

Yesterday, World Wide Markets attended a Bitcoin Center NYC event that featured a live open outcry trading pit.  Primarily a sales pitch to get you live trading, the event was also educational. The bitcoin floor traders did attempt to ease some of the concerns regarding the withdrawal problems at Mt. Gox and the recent four day trading halt at Bitstamp that stemmed from a hacking attack.

With the rapid rise to popularity, some Bitcoin loyalists that I interviewed are still optimistic and some long-term holders of the crypto-currency remain unfazed by the recent decline from its record high of $1242 late last November.  While the majority of the people I spoke with knew little of trading or of Bitcoin, some investors claimed to be fortunate to have bought bitcoins early last year.  

With data streaming back to only 2010, technical analysts can see that price during the early years was extremely bullish as several key investors backed the crypto-currency and especially last March when the U.S. government announced guidelines on how to legitimize this alternative investment with money-laundering and record-keeping rules.

Traders can clearly see the relentless strength shown on the daily chart (provided by Bitstamp)since its inception has been threatened and a major pullback may continue if we see both a break down below the $600 level and if the 50-day Simple Moving Average (SMA) crosses over the 100-day SMA and forms a death cross pattern.  The key downside target will be the well tested $450 level and then possibly the $200 psychological level. 

If price can avoid this death cross formation and recapture the $700 handle, key upside targets will target the 50-day SMA at around the $775 level.

The trade: Sell Bitcoin at $620 with a stop loss at $705 and a take profit at $450.  The Risk/Reward Ratio is 1 : 2.

 

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

 

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