A fizzled “RSI divergence” looks bullish for Bitcoin … another technical tailwind for the crypto sector … why Luke Lango sees disinflation in 2023 helping crypto … a huge “A.I.” event tomorrow

Each day that Bitcoin’s price doesn’t pull back substantially, it increases the chances we’re on the cusp of seeing a major bullish leg higher.

The reason stems from a divergence in Bitcoin’s Relative Strength Index (RSI).

To make sure we’re all on the same page, the RSI is a technical indicator that helps show the strength and/or weakness of a stock. Most investors use the RSI to evaluate whether a stock is under- or overvalued.

And while that’s certainly helpful, there’s another incredibly powerful use of the RSI…

A divergence between the RSI’s direction and the stock price’s direction often indicates a change in the stock-price is soon to follow.

For example, when the RSI begins climbing from oversold conditions while the stock price continues to drop, that suggests you’re on the cusp of a bounce in the stock price.

To illustrate, look at the chart below of XLE, which is the Energy Select Sector SPDR ETF

From June through mid-July of last year, you can see its price falling while its RSI begins to tick up ever so slightly from the “oversold” level of 30 to 37…

See how the RSI level around July 15 was higher than the RSI level back around June 20 – even though the stock price was materially lower?

That’s the divergence we’re talking about.

Here’s how this played out as July wrapped up…

You’ll often see this dynamic work in the other direction too – and that brings us to Bitcoin

When a stock or asset is still climbing, yet you see the RSI turn south from overbought levels, watch out. An asset-price reversal often follows.

And that’s what appeared to be Bitcoin’s fate only a few weeks ago.

From our February 9th Digest:

Bitcoin has been grossly overbought. And if we look at its RSI in recent days, it’s been falling hard…

Take a look at this divergence.

From this chart, it appeared Bitcoin was on the verge of a significant drop in price.

But that didn’t happen.

The RSI divergence fizzled – instead, here’s how things played out

While Bitcoin’s price did pull back, the decline was relatively mild. It never fell below $21,500.

Meanwhile, its nosebleed RSI reading normalized and now appears to be turning north again from the mid-point reading of “50.”

So, how do we interpret this?

Well, as we began today’s Digest, “each day that Bitcoin’s price doesn’t pull back substantially, it increases the chances we’re on the cusp of seeing a major bullish leg higher.”

If Bitcoin’s price doesn’t fall in rough parallel fashion to its RSI level, then the situation goes from bearish to bullish fast. That’s because the new interpretation is that Bitcoin’s RSI is simply “reloading.”

An analogy is that of a spring compressing, getting ready for a new “pop.” If you’re an older investor like me, recall how you used to pull back the spring-loaded “ball-launcher” in an old-school pinball machine.

But this fizzled divergence isn’t the only bullish technical event that’s happening with Bitcoin

For another, let’s turn to our crypto expert Luke Lango of 

Ultimate Crypto.

Though his investment service focuses on cutting-edge altcoins, Bitcoin remains the barometer of the crypto sector. So, to get a sense for where the sector is heading, Luke’s analysis begins with Bitcoin.

From Luke:

We’d like to highlight that Bitcoin’s 100-day moving average (MA) is getting very close to crossing above its 200-day for the first time in this cycle.

The 100-day sits at $19,400. The 200-day is just above $19,700. One small rally out of BTC, and the 100-day will cross above the 200-day.

Historically speaking, every previous crypto boom cycle was confirmed by the 100-day crossing above the 200-day. 

Here’s a chart to help you visualize what Luke is writing.

Bitcoin’s 100-day MA is in blue and its 200-day MA is in red. To me, it appears this crossover is happening right this moment.

Back to Luke:

Just as important, this “golden cross” indicator has no false signals.

Every time BTC’s 100-day MA crossed above its 200-day after a prolonged drop, BTC surged over the next several months (and, often, over the next several years). 

But all of this technical analysis is shorter-term in nature – what about the longer-term variables impacting crypto?

Crypto remains vulnerable to the Fed…and the Fed remains dependent on inflation data.

But Luke sees a continuation of cooling inflation data that will support crypto gains.

Back to his update:

…Everyone’s afraid of re-inflation these days because, technically, according to the inflation data, as measured by a gauge preferred by the Federal Reserve, the U.S. economy did experience “re-inflation” in January…

But re-inflation months are a natural part of the disinflation process. 

Back in the big disinflation cycle of the mid-1970s, we had four months of PCE re-inflation – none of them ended the disinflation trend. In the big disinflation cycle of the early 1980s, we had 12 months of PCE re-inflation – none of them ended the disinflation cycle.

Historically speaking, during disinflation cycles, we tend to get one month of re-inflation for every six months of disinflation…

Luke goes on to cite additional historical data on disinflationary periods, concluding that the current disinflation cycle is likely to last at least until the summer (and likely into 2024), while inflation rates should fall by at least another 100 basis points (and likely 300 to 400 basis points).

As to the impact on crypto prices, here’s Luke’s takeaway:

Fundamentally, then, we believe the U.S. economy’s disinflation trend remains intact and, by extension, the uptrend in risk assets – including cryptos – does, too…

We believe market conditions will improve meaningfully in March, and we stand by our call for BTC to double and for multiple altcoins to rise 200%-plus in 2023. 

Considering that outlook, we think now is a pretty good time to go dip-buying…

For more of Luke’s crypto research as an Ultimate Crypto subscriber, click here.

Switching gears, put an important “artificial intelligence” event on your radar

Regular Digest readers know that beyond crypto, Luke is also our technology hypergrowth expert.

Today, all the headlines in the tech world feature one thing…

Artificial Intelligence (AI).

In the wake of ChatGPT, any stock possessing even the faintest trace of AI exposure has been exploding. As just one illustration, look at the recent stock chart of the company C3.ai…

With this as our context, let’s turn to Luke:

What’s happening in AI… especially since that day in November when ChatGPT turned the AI world upside down… is much bigger.

In short, I believe AI adoption rates are about to explode.

And adoption breeds opportunity.

That’s why my team and I have put together a road map to help you navigate the coming AI revolution – we’re calling it the AI Super Summit.

And it takes place this Thursday, March 2, at 4 pm ET.

Joining me on camera will be my friend and fellow trader, Eric Fry. Together, we’ve managed to find six different AI stocks that could show you 10X gains or higher.

We’ll bring you more details on the event and the investment opportunity in tomorrow’s Digest, but we wanted to get this in front of you today so you can pencil it into your schedule.

AI is going to change our day-to-day lives. And a handful of top-tier AI stocks are going to create literal fortunes for those fortunate investors who see what’s coming and position themselves accordingly.

Join Luke and Eric tomorrow at 4 PM EST for all the details of what’s in the pipeline, as well as a plan for how to get ahead of it. Click here to reserve your seat today.

Coming full circle to Bitcoin, unless we see price weakness develop very quickly, get ready, because another leg higher is likely on the way.

Have a good evening,

Jeff Remsburg