Bitcoin might be oversold

Earlier this week, a discouraging retracement in the Bitcoin (BTC) market sent the price under $40,000 for the first time after September 2021.

Many analysts expected the downfall to persist toward the $30,000 to $35,000 range. However, the price recycled $40,000 as support furthermore, and on Wednesday, BTC made a sharp move past $44,000. This renewed hopes that the $40,000 level is, possibly, where Bitcoin may bottom out before continuing its action higher in 2022.

Jurrien Timmer, the director of global macro at Fidelity Investments, named $40,000 a “pivotal support”. He remarked that Bitcoin has become “technically oversold” near the level. It may amount to a rebound in the short term.

Timmer’s bullish outlook was at the heart of three catalysts: a Stochastic RSI, the so-called S-curve model, and a ratiometric of Bitcoin to gold.

A Noticeable Bounce in Bitcoin’s Stochastic RSI

In detail, the Stochastic RSI is a momentum indicator that corresponds to an asset’s closing price with its high-low range over a distinctive period. The indicator oscillates between 0 and 100. The area outside 80 is signaling “overbought” and under 20 alerting on “oversold” conditions.

The indicator assists traders in smudging trend reversals by tracking the relationship between its high-low range (%K). And the moving average of the same high-low range (%D). So, the market produces a buy signal if the %K wave strikes the %D wave from beneath in the oversold territory.

Besides, it returns a sell signal if the %K line crosses the %D line above in the overbought territory.

As Timmer notes, Bitcoin’s %K wave has been increasing beyond the %D wave. It signaled a buy trend just as the price maintained support above $40,000.