Bearish divergence warns of Bitcoin correction

Bearish divergence warns of Bitcoin correction

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With an impending approval of a Spot Bitcoin ETF on the very near horizon, most traders are looking to long the $BTC price. However, bearish divergence has formed on the higher time frames. Trade with caution.

In the excitement and anticipation of the very first Spot Bitcoin ETF to be approved in the US, many traders and investors are placing their longs on $BTC with the notion that once the news drops the price will surge unstoppably higher.

Sell the news?

That said, there is such a phenomenon as a ‘sell the news’ event, whereby the announcement of very positive news is followed by a strong and sustained period of selling, during which many of those who are long are shaken out of their positions, especially if they are employing leverage.

Bearish divergence

To add to this, the longer term price charts are showing some ominous signs of bearish divergence forming, which is providing a menacing black cloud over bitcoin as the Spot Bitcoin ETF announcement draws ever nearer. God forbid that the announcement is negative.

Source: Trading View

The divergence first appears on the daily time frame. As can be seen on the chart above, the bitcoin price is climbing, while the Relative Strength Indicator (RSI) is falling.

Bearish divergence doesn’t always play out

Source: Trading View

Even more concerning, is that the divergence is showing on all the time frames from the daily up to the weekly. That being said, divergence can continue for very long periods of time before either finally triggering a price drop, or being negated as price climbs enough in order to invalidate the divergence.

Even with the bearish divergence hanging over bitcoin, there can still be some runway left for the king of the cryptocurrencies. Surmounting the resistance at $44,000 will go some way towards helping the price to perhaps reach the next target of $48,000 to $50,000.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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