Tuesday's Market Minute: Bitcoin Surges As Nasdaq Correlation Breaks Down

Bitcoin futures are up more than 55% since the start of their rally off the Mar. 10 lows, and have broken above some notable resistance points. The /BTC contract crossed above both 27,355 and 29,000, which roughly represent a large weekend gap from Jun. 10 to Jun. 13. The move up was interesting because /BTC formed a bull pennant pattern: this is when price sees a sharp rise upward, then a brief period of consolidation in a triangular pattern, then another sharp rise above the initial highs. The uptrend shows few signs of slowing, as major moving averages are trending upward and the shorter-term averages are diverging apart from the longer-term averages. 

However, one potential fly in the ointment for the bulls is that the Relative Strength Index (known as the RSI, which measures the momentum of price changes) is showing bearish divergence. This means price is making new relative highs while the RSI is not, which suggests momentum is not quite as strong as traders focused on the upside may wish. A cross above the 70 threshold, known as the overbought area, in the RSI would be another bullish signal that may help shore up confidence in the move.

Another thing to consider is that the correlation between bitcoin and Nasdaq futures is breaking down here. A chart of the 10-day correlation between /BTC and /NQ typically shows a reading close to 1, which suggests the two products tend to move in tandem. The correlation currently gives a reading near zero, which suggests the two products are not showing notable relationship in their directional movement. This begs the question of whether bitcoin will start to slow and return to its typical correlation with the Nasdaq, or if the tech-heavy index is the laggard.

In terms of support and resistance, the 29,000 area could be a point to watch for support as it represents the start of the aforementioned gap and the highs from the recent range that price formed during the past few weeks. To the upside, the yearly +2 Standard Deviation Channel comes in around 30,895 so this could be another area to watch for some resistance.

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