- Bitcoin's weekend sell-off did a lot of damage to momentum, according to Fairlead Strategies' Katie Stockton.
- The technical breakdown means investors should reduce exposure to bitcoin and crypto broadly.
- "The non-reaction to short-term oversold conditions last week suggests that any bounce may be fleeting," Stockton said.
Bitcoin fell as much as 27% over the weekend, catapulting the almost $1 trillion cryptocurrency into bear market territory and leading to a breakdown in several technical momentum indicators, according to Katie Stockton of Fairlead Strategies.
"The decline was likely in part technically-driven, exacerbated by the derivatives market, and not helped by the downside momentum behind high-growth stocks on Friday, to which bitcoin has been positively correlated," Stockton told Insider over the weekend.
And while bitcoin has been known for staging swift and sizable recoveries from prior declines, Stockton is urging caution to investors eager to buy the dip as short-term and intermediate-term momentum is now bearish.
In a Monday note, Stockton pointed out that bitcoin's weekend sell-off violated well-established support near $52,900, and a non-reaction to short-term oversold conditions "suggests that any bounce may be fleeting."
"The decline reflects a loss of intermediate-term momentum that serves as an impetus to reduce exposure to bitcoin and cryptocurrencies broadly," Stockton explained.
Stockton now has her eyes on bitcoin's next support level of $44,200, which represents downside potential of 13% from current levels. On the other hand, resistance for the cryptocurrency is $55,000, according to Stockton, representing potential upside of 8%.
Adding to Stockton's worries is a "sell" signal generated by the weekly moving average convergence divergence indicator, or MACD. This sell indicator has flashed for the first time since April, "increasing risk into year end, noting there's room to intermediate-term oversold territory," Stockton explained.
The weakness in crypto isn't contained to just bitcoin, as Stockton also sees additional technical pressure on ether following the weekend sell-off. And that's no surprise, given that ether has a strong 90%+ correlation to bitcoin. This dictates a more bearish stance on ether, with its short-term and intermediate-term momentum indicators turning bearish, according to Stockton.
"Like bitcoin, ether has a new weekly MACD 'sell' signal that increases risk of a deeper correction, which means it may be prudent ro reduce exposure," Stockton said.