The stock market is enjoying a solid session on Friday as the bulls hope to snap a five-day losing streak in the S&P 500.
Helping lead the way? A risk-on rally in cryptocurrencies.
When I look at the market, I view it in sections. The S&P 500 is a broad-market index, but there are clues elsewhere. Small-cap stocks, growth stocks, tech and bitcoin are all sections to watch in the market to get a sense of where investors are taking on risk.
When investors are taking on risk, they might be signaling a broader rally. As this pertains to bitcoin, the top cryptocurrency is working on its third straight daily rally.
Bitcoin prices are now up more than 11% from Wednesday’s low to today’s high. But the bulls ought to beware: The king of crypto is not yet out of the woods.
After plunging below key support last month, bitcoin has been oddly quiet as it chops in a $3,000 range between $18,750 and $21,750.
Traders who move in and out of bitcoin must respect areas of support and resistance. If anything is apparent in 2022 — across all assets — it’s that the technicals can help keep investors out of trouble if they bail once support is gone.
So what does bitcoin need to do to get the bullish party started?
Trading Bitcoin
Daily chart of bitcoin.
Chart courtesy of TrendSpider.com
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The previous “blow-off top” comes into play around $19,500, but it hasn’t been much of a factor as bitcoin blew right below this level.
After it did so, it found a low at $17,600 and has been putting in higher lows since. That being said, resistance around $22,500 has come in. For the bulls to enjoy an extended rally, bitcoin must reclaim this level.
And a number of key measures come into play at or just above this level. Between $22,500 and $25,000, there are the 200-week, 10-week and 50-day moving averages.
On the plus side, bitcoin is putting in a series of higher lows and is trading above the 10-day and 21-day moving averages.
From here, it needs to push into the $22,500 area. If it can clear $25,000, that could clear the path up toward the $29,800 to $30,000-plus zone.
A word of warning, though: Watch uptrend support (blue line). If this level is lost, it puts $18,750 back in play. A break of this level opens the door back down to the 2022 low.
If you need a reminder of what happens when uptrend support breaks in the midst of a larger overall downtrend, just look at the prior examples on the charts.
The break from $40,000 opened the door down to $26,000 and the break of $30,000 put $18,000 in play.
Keep that in mind.
