The technical indicator, created by Point 72 consultant Tom Demark, has long been a staple of trading suites of crypto investors, giving these individuals a way through which they can figure where assets have found macro reversal points.
Indeed, as Demark noted in a recent interview with Bloomberg, his indicator printed a “13” candle (a reversal candle) when Bitcoin hit $20,000 in December 2017, when BTC cratered to $3,150 on December 14th of 2018, and at the $14,000 top in June of 2019.
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In other words, his indicator managed to call the three most important inflection points of Bitcoin’s entire price trend over the past few years, giving the TD Sequential a great track record.
Thus, it should be noted that there is growing downside risk in the crypto market, for the Sequential has once again started to print a signal, and it could be bearish.
Bitcoin Price Could Soon Reverse, Key Indicator Suggests
Over the past 50 days, Bitcoin has found itself in the midst of a strong recovery. Few expected this, save for Thomas Thorntown of Hedge Fund Telemetry, who on December 17th noted that BTC was forming a TD Sequential 13 candle when prices were well under $7,000, suggesting an impending reversal.
And that BTC did, reversing strongly and rallying over the course of a few weeks as high as $9,850 earlier today. Though, this uptrend may soon come to an end.
The same indicator that has proved so accurate for Bitcoin has once again issued a signal, as hinted at earlier. And this time, it’s more bearish than bullish.
Thornton noted in a tweet published Friday morning that he recommends his followers to start “selling long today and go neutral,” citing the fact that the Sequential is one day from forming a 13 candle the same way it formed at the $6,400 bottom.
If the 13 forms, the historical precedent of the indicator’s accuracy would suggest that BTC is in for a strong pullback over the next couple of weeks. While Thornton didn’t give a target, popular crypto analyst Mayne on Twitter recently said that he expects to soon see an over $1,000 pullback, which would imply prices in the $8,000s.
#BITCOIN update. Recommending selling long today and go neutral. Maybe a little early with pending DeMark Sequential Countdown 13. Up 52% from buy recommendation in December when there were DeMark buy Countdown 13’s cc @DTAPCAP @RaoulGMI @MarkYusko @APompliano pic.twitter.com/m0D9wpjOSm
— Thomas Thornton (@TommyThornton) February 7, 2020
Not Only Bearish Sign
That’s not the only analysis indicating Bitcoin is starting to show signs it is in for a pullback.
Per previous reports from NewsBTC, on Wednesday night, the BitMEX funding rate for the Bitcoin contract hit a value as high of 0.14%.
According to a recent analysis shared by economist and crypto analyst Alex Krüger, Bitcoin printing a funding rate of above 0.12% (equates to a crazy 131% when annualized) has historically been a precursor to relatively large drops.
This boxplot shows what happens with bitcoin’s price when Bitmex funding reaches levels as extreme as today’s.
Bitmex funding can be used as a proxy for traders positioning.
Mean return after 5 days has been -7%.
This is free Alpha. Subscribe for more: https://t.co/p1WcWwDOiJ pic.twitter.com/Gs0Hu6GWdl
— Alex Krüger (@krugermacro) February 7, 2020
More specifically, every time the aforementioned funding rate was seen, Bitcoin dropped an average of 7% in the five days that followed. Yes, there are exceptions to this trend (like in the early-2019 mania), though the clear trend is high funding rates are often precursors to a precipitous decline.
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