Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

A man watches a screen showing the prices of bitcoin at a virtual currency exchange office in Seoul on Jan. 16, 2018.

Ahn Young-joon/AP

There was a long period when I equated technical analysis with astrology – a baseless distraction that only mattered to the extent that other people believed in it and acted accordingly. The realization that technicals were a way of quantifying sentiment – putting numbers to the degree of optimism or pessimism reflected in the market, if only for a short time frame – changed my mind.

Under normal circumstances, technical analysis is the final stage of my investing process. Fundamental research is used to find stocks or other assets with attractive valuations relative to their bright outlooks, and then technical analysis is implemented in an attempt to find the most profitable entry point for investment.

There are cases such as cryptocurrencies, however, with no conventional means of valuing the asset, where sentiment is more or less the only guide to future returns. In these cases, technical analysis can be extremely telling. Technical analysis is far from foolproof, and not on its own a reason to make market transactions, but in cases such as bitcoin, there's little else to go by.

Story continues below advertisement

The magnitude of bitcoin's 2017 September-to-December rally – the value in U.S. dollars increased more than fivefold – is such that it makes most charts of technical indicators longer than three months unintelligible.

The exception, where some information can be gathered, are moving average trend lines, which are depicted in the accompanying chart.

For active traders, trend lines are viewed as a source of both support and resistance for asset prices. When a stock is trading above its 50-day moving average (50DMA) and the price is falling, for instance, the decline will often pause at the trend line and attempt to rally.

The same is true in reverse. A stock trading below its 50-day line and moving higher will often bounce off the trend line, head temporarily lower, and attempt to breach the trend again. Experienced traders will say "price has memory" to describe the influence of trend lines.

The chart shows that the 50DMA provided no support for bitcoin whatsoever – the price knifed through it on the way lower without pause. This is a sign of significant downside momentum.

The next level of potential resistance or support is the 100-day moving average, currently at $8,800. Holders of cryptocurrencies will be hoping the selling eases at this point and the price stabilizes and attempts to stage a rally. If the 100DMA provides no help, the next level is the 200-day moving average near $5,660.

Cryptocurrencies are a new phenomenon and, no matter what anyone says publicly, bullish or bearish, everybody is to a significant extent feeling around in the dark where "fair value" is concerned. Technical analysis, by estimating sentiment levels surrounding these assets, can assist investors and speculators in judging the immediate future for these asset prices.

Story continues below advertisement

Scott Barlow is Globe Investor's in-house market strategist.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to
Comments are closed

We have closed comments on this story for legal reasons or for abuse. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies