- Bitcoin's sustained break below $40,000 is a bearish long-term development, Fairlead Strategies' Katie Stockton said.
- The technical analyst said the breakdown increases the risk that bitcoin falls 29% to $27,200.
- "There is room for further downside in the months ahead," Stockton said.
Bitcoin's sustained breakdown below the $40,000 support level represents a bearish long-term development for the cryptocurrency, Fairlead Strategies' Katie Stockton said in a Monday note.
The technical analyst had been monitoring $40,000 as a key support level for bitcoin, and defines the confirmed breakdown as two weekly Friday closes below the key level.
The breakdown in bitcoin means that there is now increased downside risk for the cryptocurrency to trade to $27,200, which represents a potential decline of 29% from current levels.
"Because the monthly [moving average convergence/divergence indicator] is on a 'sell' signal, and the monthly stochastics are pointing lower above oversold levels, there is room for further downside in the months ahead," Stockton explained.
The MACD indicator tracks the movement of moving averages of a security and is separate from moving average crossover strategies that include the widely followed death cross and golden cross. Traders use the MACD indicator to gauge short and long-term momentum trends for a security.
"There is a bearish whipsaw in the weekly MACD that we see as a negative intermediate-term catalyst that increases risk to fibonacci support near $27,200," Stockton said.
While Stockton's long-term and intermediate-term momentum indicators are in bearish territory, her short-term indicator is in neutral territory, suggesting that there could be some upside whipsaw movement in the near-term.
"Resistance is defined by the 200-day [and] ~40-week moving averages, currently near $47,200," Stockton said. A surge to that level would represent potential upside of 23% from current levels. But that resistance target is set to be revised lower upon downside follow-through, Stockton said.
The last time bitcoin saw its monthly MACD hit a "sell signal" was from March through June of 2020, while the last prolonged monthly MACD sell signal was from July 2018 through May 2019, amid the ongoing unwind of bitcoin's late 2017 bull run, Stockton told Insider.
Bitcoin is down 44% from its record November high of about $69,000, and is down 18% year-to-date.