Warning: Bearish alert for Bitcoin and Ethereum

Dow Theory and basic trendline analysis tell us that trouble is brewing with Bitcoin.

In my April 1st, 2024 Crypto Report (available only to Subscribers), I wrote that “if Ethereum and Bitcoin jointly pierced the 3/20/23 lows, I would turn bearish”. ETHE decisively violated its 3/20/24 lows on 4/12/24 and continued lower for two days. On 4/16/24, BTC also broke down its 3/20/24 lows, confirming ETHE. I consider such a breakdown a bearish omen.

Some might argue that the pullback from the 3/13/24 (BTC) and 3/11/24 (ETHE) highs to the 3/20/24 lows did not meet the time requirement for a secondary reaction, and hence, the joint piercing of such lows was not so bearish. To get the setup for a bear market signal, we first need a secondary reaction, which must last at least ten trading days.

Given that cryptos are fast-paced and highly volatile, I tend to shorten the time requirement to consider the existence of a secondary reaction (which later may evolve into a Sell signal). Thus, the breakdown of the 3/20/24 lows was, at the very least, a warning sign.

If we insist on a secondary reaction lasting two weeks or more, even in such circumstances, both BTC and ETHE have completed a secondary reaction and the setup for a primary bear market in BTC and ETHE have been completed. Following the pullback lows (Step #2), a four-day bounce followed that completed the setup for a potential primary bear market signal (Step #3).

The table below gives you the relevant information:

 

 So, now the situation is as follows:

a) if BTC and ETHE jointly pierce their pullback lows (Step #2), a primary bear market will be signaled.

b) if BTC and ETHE jointly break topside their March highs (Step #1), the setup for a primary bear market and secondary reaction would be canceled.

The chart below helps you visualize the current situation. The brown rectangles show the secondary reaction that started after the March highs. The blue rectangles highlight the bounce (Step #3) that set up both Crytos for a potential primary bear market signal. The red horizontal lines highlight the 4/23/24 lows whose breakdown would signal a new primary bear market. The blue horizontal lines highlight the March highs whose breakup would cancel the secondary reaction and the setup for the bear market signal.

All in all, the April lows are vital. I would even add that the breakdown of the 3/20/23 lows was the first warning of a trend change. I am willing to accept a secondary reaction in the fast-paced crypto markets when the pullback/rally lasts less than two weeks. So, it is not outlandish to say that I have been “preliminarily” bearish since 4/17/24 when BTC pierced its 3/20/24 lows (and confirmed ETHE, which did so on 4/12/24). Looking forward, a breakdown of the 4/23/24 lows would be most bearish.

While not Dow Theory, the chart below is obvious and not bullish. A significant trendline has been broken, and the subsequent price action indicates a clear bearish trend, as prices struggle to move back above the trendline:

For the fundamental reasons I will explain in my next crypto report to Subscribers (due on May 1st), I am becoming bearish on Bitcoin, and the charts seem to confirm my bearishness. BTC is due for a breather.

Sincerely,

Manuel Blay

Editor of thedowtheory.com