Analyzing Bitcoin’s Correlation With the S&P 500

However, the increase has seemingly stalled over the past week, since the price has reached an important resistance level. Well-known trader @Pierre_crypt0 outlined an S&P 500 chart that shows the price struggling to move above its 200-day moving average (MA).

In this article, we will take a closer look at the BTC price movement along with the S&P 500 to determine if there is any correlation between the two and if we can use the price of one to predict the other.

Correlation

The image below shows the price of the S&P 500 (candlesticks) and that of BTC (blue). Since April 23, the movement of both has generally been in the same direction. This is evident especially when the S&P 500 moves upward. However, since April 30, when both assets reached a top, the price of the S&P 500 has been decreasing rapidly while that of BTC has been moving downward at a much more gradual pace. This is even more evident when incorporating the Correlation Coefficient, which shows a value of 1 for perfect correlation and 0 for no correlation at all. The coefficient has decreased during downward moves, as is evident on April 24, and has approached 0, sometimes falling into negative territory. To the contrary, it has been very close to 1 during upward movements. Since April 30, the coefficient has gradually decreased and is currently at -0.25, indicating a very low correlation.

Future Movement

So, we have found that if the S&P 500 were to go up, BTC would very likely follow suit. In this section, we will determine how likely that is to occur. The S&P 500 price has been increasing since it reached a bottom on March 13. However, on April 30, the price was rejected by the 200-day MA along with the 0.618 Fib level of the entire downward move. This is a likely place for a trend reversal. In addition, even if the price were to increase above this MA, it would face resistance at the 0.786 Fib level, which is also a previous support area. Therefore, the current movement is much more likely to be a retracement than the beginning of a new upward move.

In the short-term, the price is possibly trading inside an ascending, broadening wedge. At the time of writing, the price was currently very close to the support line of this pattern. A bounce at the support line followed by a move towards resistance would take the price right at the next resistance area at the 0.786 Fib level, as outlined in the image above.

To conclude, the BTC and S&P 500 prices have been positively correlated, especially during upward moves. However, the S&P 500 was rejected at a strong resistance line and its potential for long-term upward moves seems limited. A short-term upward move is likely to transpire if the price bounces at the support line of its short-term pattern.