Bitcoin (BTC) tracks S&P 500 but shows bullish signs
The negative correlation between the US dollar index (DXY) and the prices of large US companies (SPX) may hold some clues for the cryptocurrency sector and Bitcoin (BTC). If the dollar stops rising, both stock markets and cryptocurrencies could recover soon.
This possibility is particularly evident when evaluating Bitcoin's long-term performance against the S&P 500.
It seems timely that the Q3 correction in traditional markets and cryptocurrencies may be coming to an end. If this happens and the US dollar freezes, the following months may continue the upward trend from the beginning of this year.
US Dollar Index Adjustment…
The weekly chart of the US Dollar Index (DXY) shows an asset in strong growth. Since the low of 99.5, reached in July 2023, the DXY has generated 11 consecutive green bullish candles and is closing with 12.
Moreover, in August, the dollar came out of the resistance line (black). Then in September, it crossed important resistance at 105.5 (red line). Both of these events are bullish signs that confirm the increase.
However, such a strong progress seems to be gradually diminishing. 12 consecutive green candles is a very rare phenomenon, after which a correction should be expected. The weekly RSI is slowly heading towards overbought territory, and a bearish divergence has even occurred on the daily indicator.
Additionally, this week's candle, several hours away from closing, may take the form of an Evening Star or Tombstone Doji. Both forms contain long upper wicks that indicate selling pressure. Moreover, they often appear at the top of a rise and indicate an impending correction.
If this happens, the closest support level for the DXY is around 104, which remains the 0.382 Fib retracement level in conjunction with the overall up move. On the other hand, the continuation of the rise DXY can lead to the next resistance position in the 108-109 region (red rectangle).
… Leads to S&P 500 Bounce.
The upcoming correction in the DXY will be in conflict with the potential momentum on the S&P 500 chart. The index of the 500 largest companies in the U.S., which usually has a negative correlation to the dollar, hit a local high of $4607 in July 2023.
It is currently approaching the long-term support/resistance level at $4200 (green line). At the same time, this is a regular correction point at the 0.382 Fib retracement.
Moreover, the daily RSI is on the border of the oversold territory and is testing the long-term support line (blue circle), which has been confirmed many times before.
If the SPX holds this key support level, it could be headed higher. Then, the cards will break the top of the area at $4,607 in January 2022 and move to an all-time high (ATH) at $4,818.
Bitcoin is lagging behind the S&P 500.
The two trends mentioned above—the recent DXY rise and the potential SPX bounce—have major implications for the cryptocurrency market and Bitcoin. More importantly, the price of BTC is well correlated with the SPX index, despite the lack of short-term correlation.
Popular cryptocurrency market analyst @therationalroot published a chart of the two assets on X. It clearly shows that the S&P 500 (blue) and Bitcoin (orange) look very close since 2020.
However, an interesting phenomenon has been observed in the last few months when the two charts diverge clearly. The S&P 500 continued its uptrend and approached its ATH by only 4.5%.
In contrast, Bitcoin has not experienced a strong continuation of the upward trend during this period and is consolidating. Additionally, it still remains about 60% below the November 2021 ATH.
However, the BTC price may increase its volatility after this transition period behind the SPX. Then, the last quarter of 2023 is likely to bring better returns than traditional markets.
The bullish sign remains the same – the beginning of a bull market
Bitcoin's correlation with the S&P 500 still has a double bottom. Historically, the major cryptocurrency's performance against the SPX index has proven to be a good indicator of cryptocurrency bull and bear markets.
Macroeconomist and analyst of financial cycles @HenrikZeberg published a long-term chart of BTC/SPX on X.
The difference remains the size of the returns (and failures). While the SPX has helped gain about 40% in the previous two cycles, BTC has generated 45x returns in 2015-2018 and 6x returns in 2019-2021.
According to the analyst, the confirmation of the bull market and the “risk” period was the upward crossing of the RSI indicator signal line (green) of the BTC/SPX pair for the month.
These are golden places. The opposite sign was the downward crossing marked by red spots.
The last part of the chart showing an upward sign was last seen in February 2023. Bitcoin started generating more gains than the S&P 500 and the RSI of the BTC/SPX pair shot higher.
Despite a slight correction, the RSI remains above the green line, indicating that the bull market remains intact.
A correction on this indicator and another touch of the green line may indicate a bullish attempt. This remains in conjunction with the likely momentum on the SPX chart and the end of the US dollar's rise.
If the signs are confirmed, the cryptocurrency market and Bitcoin may soon enter a ripe bull market stage.
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Disclaimer
In accordance with Trust Project guidelines, this price analysis article is for informational purposes only and should not be construed as financial or investment advice. BeInCrypto is committed to accurate, unbiased reporting, but market conditions are subject to change without notice. Always do your own research and consult with a professional before making any financial decisions.
