Coinbase Global, Inc COIN opened lower on Thursday and continued to fall intraday, down more than 8% in afternoon trading.
The stock may be settling itself into a bear flag pattern on the daily chart, trading in tandem with Bitcoin BTC/USD, which is forming the same pattern.
The bear flag pattern is created with a steep drop lower forming the pole, which is then followed by a consolidation pattern that brings the stock higher between a channel with parallel lines or into a tightening triangle pattern.
- For bullish traders, the “trend is your friend” (until it’s not) and the stock may continue to rise upwards within the following channel for a short period of time. Aggressive traders may decide to purchase the stock at the lower trendline and exit the trade at the higher trendline.
- Bearish traders will want to watch for a break down from the lower descending trendline of the flag formation, on high volume, for an entry. When a stock breaks down from a bear flag pattern, the measured move lower is equal to the length of the pole and should be added to the highest price within the flag.
A bear flag is negated when a stock closes a trading day above the upper trendline of the flag pattern or if the flag rises more than 50% up the length of the pole.
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The Coinbase Chart: Coinbase’s bear flag formation started to print on June 8, with the pole forming between that date and June 13 and the flag printing over the trading days that have followed. The measured move of the pattern is about 37%, which suggests the stock could fall toward the $35 mark if the pattern is recognized by the algorithms.
- Coinbase is also trading in a confirmed downtrend, with the most recent lower high printed on Wednesday at $56.66 and the most recent confirmed lower low formed at the $46 mark on June 13.
- If the stock breaks down from the bear flag pattern it will print another lower low and possibly break to a new all-time low.
- The stock is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The eight-day EMA has been acting as heavy resistance, pushing Coinbase lower since April 5.
- Coinbase will eventually bounce up to at least print another lower high within the downtrend because the stock’s relative strength index (RSI) is measuring in at about 33%. When a stock’s RSI reaches or drops below the 30% level it becomes oversold, which can be a buy signal for technical traders.
- Coinbase has resistance above at $60.99 and $83.32 and support below at the current all-time low of $40.83 and slightly lower at the psychologically important $40 mark.
Photo courtesy of Coinbase.