Bitcoin crashed below a key support yesterday but there was no follow through. So, the price ended up climbing back above the support and flipped bullish. Even though it is now showing signs of strength, there is a good chance that it is all temporary and we might be headed lower after a near term retest of the trend line support turned resistance. In the most optimistic scenario, we could expect a rally towards $9.5k now that the S&P 500 (SPX) has also started the day in green and has shot past the psychological resistance of 3,000.
It is important to realize that the index is close to topping out. This recent bullishness seems to be an attempt to trap in more bulls before the actual downtrend begins. At this point, a large number of retail traders are bullish on the market again expecting further rallies hoping that the Coronavirus situation would be resolved soon. In my opinion, most traders with this kind of a mindset are the perfect example of the complacence that we have seen in financial markets since 2009. It just got too easy to be bullish on the market and make money without any serious effort.
As for Bitcoin, this would be the first time we see a bear market in stocks. This further increases the risk of a major decline in cryptocurrencies. For now, BTC/USD seems to be holding its ground above the 200-moving average on the 4H time frame but it could quickly crash below it and then it would be all set for that major downtrend which this time could be a lot worse than before. The price of Gold (XAU/USD) is also vulnerable at this point but they driving factor in Bitcoin’s next decline would be the beginning of the downtrend in stocks.