Bitcoin (BTC) rally seems to have come to an end now that the price has tested the 1.618% fib retracement level. BTC/USD started the day in red and is expected to fall back towards the bottom of the parabola in the near future. It is unlikely that the sell pressure could keep the price from falling below this parabola especially now that the S&P 500 points to a gloomy outlook in light of recent developments. The trade war with China just took a turn for the worse and the US is planning to deploy troops in the Middle East. Meanwhile, the situation with Iran in connection to oil is yet to resolve. In a nutshell, the world is headed towards turmoil both politically and economically. The current rally in BTC/USD despite fear on Wall Street is as artificial as they come.
Regardless of all the hype around Bitcoin (BTC) being projected as digital Gold, institutional investors and professional traders are not ready to see it more than a highly speculative asset that come down in the same manner that it has shot up in the past few days. As far as smart money is concerned, this was an orchestrated ploy to wipe out the bears and sucker in more bulls before the inevitable shows itself. What is that inevitable? It is a steady decline in the price of Bitcoin (BTC) in the weeks and months ahead. The daily chart for BTC/USD shows that the RSI has not been this overbought since the beginning of the bear market. Similarly, the NVT was not this high even at the peak of the last bull run. NVT ratio is to Bitcoin (BTC) what P/E ratio is to stocks which makes it a very good indicator of whether Bitcoin (BTC) is overbought or oversold at a particular point.
The S&P 500 Index (SPX) is hanging by a thread as it has found a support at the 21 week EMA. If a sharp move pushes it below the 21 week EMA by the end of the week, we could see a strong decline set in as early as next week. The weekly chart for the index shows that it has already formed a double top and is thus primed for further downside. Certainly, we could expect it to form a triple top if the price bounces off from current levels but just like the rally in Bitcoin (BTC) it would be delaying the inevitable. As the Fed keeps unwinding its balance sheet till September and as geopolitical conflicts threaten the stock market, we can expect the further downside in the weeks and months ahead.
In the past, we have seen that most of the time this index falls, BTC/USD falls with it. The converse is not necessarily true as sometimes investors take profits in BTC/USD to reinvest into stocks. If the S&P 500 rises again, there is a high probability that investors will cash out their Bitcoin (BTC) profits and put them in stocks. We have already seen strong rallies in most altcoins today while Bitcoin (BTC) traded sideways which means investors might have traded their Bitcoin (BTC) for altcoins. As the altcoin rally comes to an end, that money is likely to be either cashed out in fiat or put into stocks considering the recent rally was driven by institutions and not retail investors.