Bitcoin tumbles 5%, tests key $60,000 price level as sell signal looms

If bitcoin does not quickly reclaim support at about $62,000, it faces a downward test of its next support level near $51,500, Katie Stockton said.

• Bitcoin fell 5% on Tuesday, setting the cryptocurrency up for a test of major price levels.
• The crypto tested $60,000 on Tuesday and fell below a key support level of $61,100, according to Katie Stockton.
• Stockton said bitcoin is on the verge of flashing a sell signal based on a weekly momentum indicator.

The price of bitcoin dropped 5% on Tuesday, sending the cryptocurrency to test the key psychological level of $60,000.

The decline on Tuesday follows a weeks-long decline that started in mid-March, when the price of bitcoin was trading just below $75,000, a record all-time high.

But bitcoin is on the verge of experiencing a double whammy as it breaks below a key technical support level and flashes a technical sell signal, according to Fairlead Strategies founder Katie Stockton.

Stockton said in a note on Monday that below the range of $61,100 to $62,200, bitcoin has violated a key technical support level, opening the cryptocurrency up to further downside in the short-term.

"A breakdown below the daily cloud would be an intermediate-term bearish development for bitcoin, as it would be associated with a weekly MACD 'sell' signal," Stockton said.

The cloud refers to a technical method to determine various levels of support and resistance, while the MACD is a momentum indicator that helps traders determine the prevailing direction of a security. 

According to Stockton, bitcoin lost momentum near its 50-day moving average of about $66,900, which proved to be stiff technical resistance.

Bitcoin currently has bearish short-term momentum, and its intermediate-term momentum is on the verge of flipping from neutral to bearish, according to Stockton.

If bitcoin does not quickly reclaim support at about $62,000, it faces a downward test of its next support level near $51,500, which represents potential downside of 15% from current levels.

But despite the potential downside, Stockton still believes bitcoin is in a long-term uptrend after it hit record highs in March, and that could ultimately mean rising bitcoin prices in the future if it can shake off its current corrective phase.

"While bitcoin is caught up in a corrective phase, we ultimately expect it to resolve higher given the bullish posture of our long-term indicators after a major breakout to new highs last month," Stockton said.

While Stockton's long-term technical view on bitcoin is bullish, another technical analyst has a more bearish outlook and recently said the token may be poised for a 50% price decline.