With an astounding SCTR score of 99.6, Coinbase (COIN) is soaring to the sun, but its wings of momentum appear to be melting.
Despite hitting a two-year high (and Bitcoin hitting an all-time high), the entire crypto marketspace is in a foggy haze of confusion, stemming from the Federal Reserve’s March 11 Bank Term Financing Program (BTFP) expiration (which can affect liquidity and affect various markets including Bitcoin), and the upcoming Bitcoin halving mid-April. COIN’s potential bearish setup is clear. As an aside, it also came up as part of a bearish Filled Black Candles scan using StockCharts’ scan engine.
So, if you’re looking to maul a few hopeful bulls in the near-term, here’s your potential kill box.
CHART 1. DAILY CHART OF COINBASE.
The Relative Strength Index (RSI) locates COIN’s price, well within “overbought” territory. But if you look at the Chaikin Money Flow (CMF) reading, not only do you see a dramatic divergence between buying pressure and soaring prices, but the CMF is now below the zero line, hinting that sellers are potentially taking over. Yet if you look at the current candle, you see a strong rejection off the session lows, meaning that a lot of buyers jumped in to create the “pin bar” that we now see (see blue circle highlighting the wick).
So, what do you think might happen once price falls below the pin bars low?
One Possible Way to Trade This
There are likely several stop losses right below the wick at $242.09 (see black dotted line). If prices fall below this level, it’s likely to trigger a cascade of sell orders (stop losses).
If you’re looking to take advantage of this bear run, you might set a sell stop order to go short at $242.05.
You might think of placing a stop loss (buy to cover) at $271.70 (just five cents above the most recent swing high).
Your first target would be anywhere in the range between the middle Bollinger Band and the resistance line at approximately $188.00.
Your second target would be at the support line located at $166.00, the last major swing low.
Bear in mind that this is not a long-term trade but a short-term bearish opportunity. It has no bearing on any fundamental case—bullish or bearish—surrounding COIN’s longer term prospects.
The Bottom Line
Despite its stellar SCTR score of 99.6 and seemingly unstoppable ascent, Coinbase (COIN) may be flying too high, risking a dramatic fall. For those who smell a bearish opportunity, this potential descent offers a clear setup for entry and exits. Be careful! Going short the market can assume unlimited. Hence, the stop loss is a few cents above the highest high.
How to Run a StockCharts Scan
Finding the right stocks and exchange-traded funds (ETFs) to trade can be tricky. But, with a little work, you can create a strategy that identifies a few promising prospects.
Fortunately, it isn’t too hard to learn how. Just stick to these steps:
Select (or create) a few different scan criteria
Be sure to run these scans regularly
Analyze the stocks (or ETFs) that your scan has identified
Determine your overall trading setup (including your entry and exit criteria)
The StockCharts Scan Engine is useful for narrowing down stocks and ETFs that match certain requirements. It comes with a bunch of ready-made scans that are a good starting point. As you get the hang of these scans, you can adjust them or create new ones that align with your trading goals.
For example, this article was prompted by a Runaway Gap Ups scan. As you can imagine, there are plenty more scans you can run. Try out the StockCharts Sample Scan Library (Charts & Tools > Sample Scan Library).
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.