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Bitcoin (BTC) enthusiasts may need to brace themselves for potential disappointment, as Fairlead Strategies has detected an "overbought downturn" signal on a monthly technical indicator, raising concerns for bullish sentiment.

The stochastic indicator, created by George C. Lane in the 1950s, has just retreated from levels above 80, signaling a decline in its upward momentum. This indicator fluctuates within a range of 0 to 100, with values exceeding 80 indicating overbought conditions. Conversely, readings below 20 imply the opposite scenario. When it reverses direction from overbought territory, it signifies what is commonly known as an "overbought downturn," highlighting a weakening in the upward momentum.

"At the end of August, bitcoin confirmed an overbought downturn in its monthly stochastics in a setback," Katie Stockton, Fairlead Strategies' founder and managing partner, said in a note to clients on Monday. "The downturn suggests the basing process may be drawn out, especially given the overhang of the monthly cloud model, which enhances resistance (~$31.9K) from the weekly cloud model."

The comment alludes to Bitcoin's persistent struggles in surpassing the so-called "cloud resistance" at $31,900 over the past few months. It suggests that this may signify a protracted consolidation or bottoming phase, which could be seen as a setback on the path towards a more substantial, long-term recovery, as articulated by Stockton.

Stochastic has printed an overbought downturn. (Fairlead Strategies, TradingView)


Previous instances of overbought conditions in early 2021 and December 2017 signaled significant price peaks.

The monthly MACD histogram, a tool employed to assess the strength of a trend and its potential shifts, remains stagnant around zero, signifying a neutral long-term outlook.

Crossovers above the zero line signal a bullish momentum surge, whereas a dip below zero signifies a shift towards a bearish trend. Despite the indicator hitting its lowest point a year ago and failing to turn positive, Stockton pointed out that it does not yet suggest the presence of a sustainable uptrend.

The current price of Bitcoin is $25,700 as of the moment. According to Stockton, there is strong support at $25,200, and the significant resistance level to watch is the 50-day simple moving average, which stands at $28,200.