Bitcoin is more than a “Bit” overbought

Bitcoin may indeed be the next currency. It may replace all forms of money or credit that we are familiar with. That aside, things can often get a wee “bit” (get it? Ok, its weak) overdone in any security that has caught the markets’ attention. Gold, oil, tech stocks, mining, condo development, tulips. These have all had historically super strong runs that seemed endless. Until their runs ended. “It ain’t over ‘til the fat lady sings” said Yogi Berra. But when she stops singing, watch out!

Take a look at the chart below. The Bitcoin index had a strong uptrend that was moving at a 45 degree angle as seen by the dashed red trendline. Yes, you can adjust lookback and that changes trendline angles, but I’m using the same timeline I use on all of my weekly charts. By doing this, I get a feel for what is a healthy uptrend vs. a parabolic move. Bitcoin became parabolic in March of this year. It angled off of the 45 degree red trendline and gapped aggressively off of its 40 week (200 day) Simple Moving Average—seen via the pink (fuchsia?) trendline. For those who read my blogs regularly, or have read my book Sideways, my rule of thumb is that any security trading at or over its 40 week SMA by 10% + is overbought to some degree.

Get ready for this folks. The NYSE Bitcoin index, per the chart, shows bitcoin at 9947. The 40 SMA is sitting at 3482.

Um…that’s, like, 280% more than the SMA value. Yikes!

Note the recent extension on the overbought RSI signal. The current overbought condition has been in place since early October. Momentum is moving faster and faster for bitcoin. It’s a runaway train.  Historically, bitcoin tends to correct after confirmations via overbought RSI and stochastics signals. You can see that on the chart via my dashed blue vertical lines.

That’s not happening this time. Will the index remain almost 300% over its 40 week SMA? Will RSI remain over the 70 overbought zone indefinitely?

Probably not.

 

Keith on BNN this Friday

Keith is on BNN MarketCall Tonight this Friday Dec 1st for the 5:30 PM show. 

Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.

If you have questions about the technical analysis of stock trends for individual stocks, be sure to phone in with your questions for Keith during the show.

Call  BNN Toll-Free 1-855-326-6266

Or email your questions ahead of time (specify they are for Keith) to [email protected]

 

 

Keith’s  interview in Report on Business section of yesterdays Globe & Mail

Click here to read Keith’s interview in yesterday’s Globe & Mail on tax loss selling

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2 Comments

  • You read my mind Keith. I was wondering what your thoughts would be on Bitcoin. Some think it’s a ponzi scheme. Others think it will go to at least 150000 next year. For something this new, where would you suggest entering and how to determine a target? Thanks in advance for you thoughts.

    Reply
    • Wanda this security is so overbought I can’t even begin to pick an entry point yet. Problem is, it could blow up “real good” (as John Candy used to say on Second City Television). So, perhaps wait for a pullback, see if RSI finds a place to settle and buy on a hook. Even then, you need to be careful. No idea if when or what price that may happen.

      Reply

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