- Bitcoin is at risk of continuing its bearish correction as the S&P 500's trading range suggests a decline.
- The US benchmark trades between its 50-day and 200-day moving averages, a metric that usually leads the market down.
- The correlation between Bitcoin and the S&P 500 has become stronger since the sellout in March 2020.
A bearish fractal in the S&P 500 that keeps the index historically lower could prove just as fatal for Bitcoin.
The U.S. benchmark has been trading between its 50-day moving average and the 200-day moving average since April 6, 2020. In addition, the index is almost 50 points below the 200-DMA, a metric that predicts changes in the trend direction. This gives the S & P 500 enough room for a correction.
At least two veterans agree to the declining forecast for the index.
One of them is Jason Goepfert, an analyst at Sundial Capital Research, who says the S&P 500 is 72 percent less likely to bottom. in the a statement to BarronMr. Goepfert cited 30 past cases in which the US index was trading between 50 and 200 DMA, with a majority leading to average downward corrections of 12.7 percent over the next six months.
"Buyers haven't shown enough momentum lately to make progress," he said. "When this happens during the downtrend markets we were in, with a longer extension close to, but below the 200-day average, this has indicated major problems and has almost always predicted further weakness."
The other analyst is James McCormick, a macro analyst at NatWest Markets. The market veteran wrote in a report If the S&P 500 exceeds its 200 DMA, it will reflect changes in the positioning of advisors to commodity traders and predict that there will be a “big short” in US stocks.
Bitcoin a collateral damage
The bearish outlook for the S&P 500 comes at a time when the positive correlation with Bitcoin against a global health pandemic has increased. Researcher at the University of Sussex Business School found that the closeness of their trends became stronger in March 2020 and rose to 63 percent.
Later in May, the correlation dropped to almost 40 percent, which seemed troubling for Bitcoin, an asset that has remained completely uncorrelated with most traditional assets over its eleven-year life.
In addition, Bitcoin is bearishly corrected after breaking no more than $ 10,000, a key level of resistance, in May, more than seven times. The downward move has extended its downward targets to $ 8,000, roughly the 200-day moving average.
If the S&P 500 plunges against long positions, ailing investors would move their holdings elsewhere to cover their margin positions. The same thing happened during the global market in March 2020, when even gold, a traditional safe haven, crashed alongside US stocks.
Bitcoin is thus exposed to similar risks.