YEREVAN (CoinChapter.com) — The stock market has pulled back from the edge, rebounding 5% since May 25. The bounce came after a nearly 17% drop in April and May. However, statistics predict the bottom is yet to come, and Bitcoin (BTC) is likely to follow suit, dragging the rest of the crypto market along. Thus, taking a closer look at equities might shed more light on the upcoming events.
Stocks in a bear market?
In 2022, the stock market experienced its worst start since the ’70s. The violent interest rate hikes from the Federal Reserve, the war in Ukraine, and rising prices for commodities such as oil and gas, contributed to the downfall.
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However, past patterns of S&P 500 (SPX) fluctuations suggest that the bottom is not in yet and that traders could expect further losses ahead. Records tracing SPX back to 1926 reveal 15 bear markets that featured a median 34% drop over 17 months.
Stock market will further decline, statistics say
In 11 out of 15 cases, the selling was interrupted after a 15-20% drawback from the local peak. The said intermission reversed some of the losses before continuing on the bearish path.
Moreover, of the 15 bear markets, 11 have also coincided with recessions, including six of the last seven, dating to 1970. In detail, a recession is a period of temporary economic decline, generally identified by a fall in GDP in two successive quarters.
According to statistics, bear markets accompanied by recessions saw a median decline of 36% over 18 months. Conversely, bear markets without recession saw a 31% drop in a similar period.
The statistics prompted Ruchir Sharma, author, and chair of Rockefeller International, to conclude that the recent bounce in S&P 500 valuation is an “intermission stage of a bear market.”
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Sharma further elaborated on the intermission stage. He asserted that while institutional investors cut their stock holdings, retail investors “have barely flinched” so far. So, where does the bear market leave Bitcoin?
Bitcoin (BTC) is still coupled with equities
As CoinChapter previously covered, the flagship cryptocurrency correlated with risk-on assets in the previous months. The chart below demonstrates the dependency.
Also read: Crypto prices mirror stocks’ rebound as executives buy the dip.
Thus, if the equities tumble, they could take Bitcoin down for the ride, erasing the recent small gains. As a result, the flagship cryptocurrency’s upside move is in danger if the risk-asset correlation stands strong. Moreover, Bitcoin’s 7% advance did not appear sustainable, as the crypto painted a bear flag on the charts, while BTC/USD stood at over $31,000 on June 6.
BTC Bear Flag further solidifies the selloff risks
The Bear Flag typically occurs after a sharp downward move. It features a period of consolidation between two parallel trendlines that takes the price slightly higher before continuing on a bearish path. Moreover, the setup’s target drop equals the decline preceding the Flag, i.e., the flagpole. In the case of Bitcoin, the target price stood at approximately $20,000.
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A closer look at the four-hour chart revealed a possible 2-3% uptrend ahead before BTC hits the Flag’s upper trendline. After that, however, the token could drop to under $30,000 and then continue on the noted trajectory once that happens.
Conclusion
Some researchers, like Ruchir Sharma, see the stock market’s further decline as imminent. Given the coupling between the risk-on equities market and Bitcoin, the latter is likely to suffer further losses. Moreover, the flagship crypto’s technicals back the bearish claim, as BTC/USD price action formed a Bear Flag despite the recent 7% bounce.
Thus, traders can’t expect the bear market to end just yet, as all the mentioned factors point out that the bottom is not in as of June 6.
