After a lackluster few months, Coinbase Global (COIN) burst higher in early November.
In just five weeks, the crypto exchange more than doubled. That’s the second time it’s doubled this year.
COIN also saw its market cap jump from $17 billion to $35 billion, as bitcoin’s resurgence lit up this sector.
But that surge sent COIN well into overbought territory.
And over this past week, it has been struggling to break higher.
So with momentum recently turning down, let’s check where COIN could be heading from here…
Signal Lines
The two moving averages (MAs) in the chart below show that COIN traded in a tight sideways pattern in the first half of the year.
The 50-day MA (blue line) meandered sideways. And the 10-day MA (red line) tracked it closely without any clear breakout moves.
Coinbase Global (COIN)
Source: e-Signal
That all changed in June when the Relative Strength Index (RSI) bullishly broke into its upper band (above the green line).
And the 10-day MA crossed and accelerated above the 50-day MA.
After COIN rallied over 140%, it peaked and reversed. The RSI retraced from overbought territory (left orange circle).
COIN’s down move coincided with the RSI falling through the support line (green line) and into the lower half of its range.
Yet the RSI wasn’t our only indicator that signaled the trend reversal in July.
The Moving Average Convergence Divergence (MACD) – seen at the bottom of the chart – also rolled over.
There are a couple of things to point out about the MACD…
First, the blue MACD line plots the difference between the 12-day and 26-day exponential moving averages (EMAs) based on the stock’s closing price.
(EMA is a type of moving average that places greater importance on the most recent data points.)
The orange line is called the “Signal Line.” It is a 9-day EMA of the MACD line.
Yet the most important thing to remember is this. When the blue and orange lines cross or diverge, it can often help us identify trading opportunities.
For example, when the MACD line crosses beneath the Signal line (as we saw in July), that can often signal a trend reversal.
Take another look:
Coinbase Global (COIN)
Source: e-Signal
Note how the histogram moves back toward zero as the two lines converge (red arrow in the chart). That is often a precursor to their crossing.
And that’s what we saw here… COIN continued to track lower once the MACD had crossed below the Signal line and both lines fell.
Then, after trading in a sideways pattern from late August to October, COIN burst higher again.
That once again pushed COIN into overbought territory (right orange circle). And momentum has recently slipped lower.
So what should we look out for here?
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A Potential Reversal
The dropping RSI says that buying momentum is waning.
And COIN could be vulnerable to a fall.
If the RSI continues back toward support, that could lock in COIN’s recent peak and set it up for a reversal.
The other thing I’m watching is the MACD.
Right now, the histogram is falling and approaching zero. That suggests the two lines could soon cross over.
The MACD line crossing beneath the Signal line would add further weight to any down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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