Dogecoin is still in a steep uptrend but be careful: analyst

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Dogecoin (DOGE-USD), the "joke" cryptocurrency that Tesla CEO Elon Musk promises to take to the moon, is exhibiting classic technical chart patterns that are flashing warning signs to traders, says one Wall Street analyst.

"[W]e really just need liquidity and price — and in some cases volume — to try to understand a security. For [Dogecoin], it's in a corrective phase within a steep uptrend. And that's a pretty common setup in the cryptocurrency world," Katie Stockton, founder and managing partner of Fairlead Strategies, explained during the latest Yahoo Finance Plus monthly webinar on Wednesday. She added that price dictates our biases of being either bullish or bearish on a stock or trading instrument — in this case Dogecoin — in any given time frame.

Dogecoin breaking down but still in an uptrend
Dogecoin breaking down but still in an uptrend

In the above chart composed of candlesticks bars that each represent one day, a pattern of higher highs and higher lows is apparent, which is the definition of an uptrend. When Stockton was analyzing the chart, the price of Dogecoin was approximately 43 cents — right at the purple horizontal line. (Since then, it has fallen lower.)

This level had been a prior resistance level and had the potential to act as support along with the 20-day moving average, the cyan line in the chart. However, Musk intervened Wednesday evening and rocked crypto markets, tweeting that Tesla would no longer accept bitcoin as payment for its electric vehicles. Dogecoin and many so-called alt-coins had already been selling off since Musk appeared on Saturday Night Live last weekend and called Dogecoin a "hustle."

Stockton points out another potentially troubling sign in the lower subgraph of the chart where the Relative Strength Index (RSI) has been making lower highs as Dogecoin itself had been making higher highs in price. The red trend line highlights this momentum divergence, and is a sign that there was declining enthusiasm in the latest rally compared to prior run-ups.

"I think the relative strength loss that we've seen recently is probably notable," says Stockton.

Applying her technical tools to bitcoin (BTC-USD), Stockton is looking for an ideal entry of roughly around $42,000, accompanied by a selling climax. "There is a Fibonacci Retracement Level around there, and that would be a natural place for it to become more oversold. And we would see that as an opportunity then to add exposure to take advantage of the big long term breakouts that we have seen behind bitcoin," she says.

Catch the entire 45-minute Yahoo Finance Plus webinar below.

Jared Blikre is an anchor and reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared

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