Is Bitcoin’s Decline Foreshadowing Further Nasdaq Weakness?

Recently I got an email from a thoughtful friend in the business. He has broad experience with the Asian markets but I found his recent thoughts about bitcoin interesting and worth sharing.

“I am too old to understand bitcoin and only casually look at it. As a highly beta instrument, I simply view it as an early warning indicator of liquidity and risk appetite,” he writes.

He goes on to say that “Bitcoin broke the long-term uptrend, rallied to the underside of the broken uptrend and failed. It suggests a kiss of death. In the past five years, bitcoin peaked before NDX — usually by 1-3 months. The (recent) divergence between falling bitcoin and a rising NDX is likely to correct.”

Let’s look at one chart.

In this weekly close-only line chart of the Nasdaq 100 index (NDX) and the nearby bitcoin futures, bitcoin futures turned lower in late June while the Nasdaq 100 peaked in mid-July. 

Now let’s look at the bitcoin futures contract below. Here I see a chart that looks weak and vulnerable. Prices look poised for a test of the rising 200-day moving average line.

The daily On-Balance-Volume (OBV) line is weak and leading prices to the downside.  

Bottom-line thoughts: Technical analysts often look for stocks or indexes for subtle hints of ones that are leading the pack. We should soon see if this current weakness in bitcoin does foreshadow further weakness in the Nasdaq 100.