The moving average convergence divergence (MACD) has become the latest charting indicator to signal bitcoin may soon see a trend reversal that could put an end to its months-long price decline.
As reported, the money flow index (MFI), an indicator used to identify buy and sell pressure, created a divergence Sunday widely considered to be an early sign of a bearish-to-bullish trend change, while last week, bitcoin saw a bearish crossover of its 50- and 100-week moving averages, a first since 2015.
As such, the MACD became the latest in a series of indicators, that when applied to bitcoin point to seller exhaustion and a potential trend reversal as of Monday.
The MACD, by definition, turns two trend-following moving averages into a momentum oscillator by subtracting the longer-term moving average from the shorter-term moving average.
The price trend is considered to have turned bullish when the MACD line crosses above the signal line, the 9-period exponential moving average of the MACD line, at which point the histogram rises above the zero line. The higher the histogram, the father apart the MACD and signal line are, indicating stronger momentum.
As can be seen in the chart below, both bullish indications have indeed taken place.
BTC/USD Weekly Chart
Bitcoin’s MACD line and signal line completed a bullish cross in early February suggesting a reversal to the predominant downtrend may be in order. Since then, the histogram, representing the space between the two lines, has gradually increased to where it stands now at 102.38 – its highest value since January of 2018.
Further, the histogram failing to set lower lows during its plunge from $6,000 to roughly $3,000 is another form of bullish divergence that points to weakening bearish momentum.
It’s worth noting the MACD did make a bullish cross accompanied by a positive histogram value in September of last year before the fall to $3,000, but the lack of separation between the MACD and signal line was evident and an indication the crossover was weak or invalid.
This time around, the follow-through after the crossover is much more substantial.
BTC/USD Weekly MACD 2015
It can be seen in bitcoin’s weekly price chart from 2015 that the strong bullish MACD crossover accompanied by rising, positive histogram values indeed confirmed the cryptocurrency’s price bottom had been set. What’s more, bullish divergence within the histogram was evident before the positive cross of the MACD and signal line, similar to how it is in bitcoin’s current MACD readings.
While indications of bitcoin’s price having bottomed out continue to emerge, caution is still the name of the game, so a break to new price lows backed by high sell volume would invalidate the bullish MACD signals.
Disclosure: The author holds BTC, LTC, ETH, ZEC, AST, REQ, OMG, FUEL, ZIL, 1st and AMP at the time of writing.