Echoes of Past Bear Markets

This is a technical analysis post by CoinDesk analyst and Chartered Market Technician Omkar Godbole.

A widely watched momentum indicator has flashed red, a warning that has signaled the start of prolonged bitcoin (BTC) downturns in every major cycle since 2012.

That indicator is the monthly chart moving average convergence divergence (MACD) histogram. The indicator printed the first red bar below the zero line in November as prices fell by over 17%, confirming a bullish-to-bearish trend change.

In other words, the negative reading on the indicator means the bull run that began around $20,000 early in November has ended and bears have taken over.

Over the years, these so-called bearish crossovers of the monthly MACD histogram have not been kinder to bulls. For instance, after bitcoin corrected from approximately $70,000 to $50,000 in late 2021, the MACD indicator turned bearish in January 2022, signaling a continuation of the downtrend that ultimately saw prices fall below $20,000.

Similar patterns emerged following bearish MACD crossovers in both 2018 and 2014, with these signals preceding the deepening of bear markets.

While past performance does not guarantee future results, meaning the latest bearish MACD crossover may not necessarily trigger a downturn, the current market environment supports the bearish case.

Several macro risks, including Japan’s fiscal strain, resilience of the dollar index and Treasury yields despite talks of Federal Reserve rate cuts, and recent outflows from spot ETFs, reinforce the negative signal.

The message is simple: Traders need to be vigilant for downside volatility. First support lies near $84,500, defined by the trendline linking 2023-2024 higher lows. A break would expose April’s low of around $74,500, then the 2021 peak near $70,000.

Ether’s outlook doesn’t look rosier either, as it has confirmed a death cross, a bearish pattern marked by the 50-day simple moving average (SMA) crossing below the 200-day SMA. It’s a sign of a short-term trend underperforming a long-term trajectory, with the potential to evolve into a full-blown bear market.

While the term death cross sounds ominous, its track record as a reliable standalone indicator in the ether market has been mixed.