Marathon Digital Holdings, Inc (NASDAQ:MARA) spiked up over 6% after the market opened Thursday before running into a group of sellers. The stock was outpacing Bitcoin (CRYPTO: BTC), which was trading near to flat.
The cryptocurrency market has shown relative strength versus the general markets over the last few weeks, holding steady or moving slightly higher while the S&P 500 has been trading in a confirmed downtrend on the daily chart.
Cryptocurrency miners such as Marathon Digital are affected by both the crypto sector and the general markets. With Bitcoin showing strength, Marathon Digital has surged over 42% since Sept. 23, but on Thursday the stock was rejecting an upper trendline due to weakness in the general market.
The upper trendline may be the neckline of an inverted head-and-shoulders pattern. An inverted head-and-shoulder pattern can be either a powerful reversal indicator when found at the bottom of a downtrend or a continuation pattern found in an uptrend.
The pattern is formed when a security forms a rounded or V-shaped trough and then rises (right shoulder) followed by a second deeper downturn and accompanying rise (head) and then by a third trough and rise that is shallower than the second (left shoulder).
The inverted head-and-shoulder pattern has a neckline, which is drawn using a straight ascending, descending or horizontal trendline across the peaks in the pattern.
When the security breaks up through the neckline on higher-than-average volume, it indicates the pattern was recognized and a rally may follow.
- Aggressive bullish traders may choose to enter a security in a head-and-shoulders pattern on the rise following the third trough, with a stop below the lowest price in the trough. More conservative traders may wait to enter a position on a break up from the neckline.
- Bearish traders may wait to enter into a position if the security falls below the lowest price within the second trough, which negates the bullish head-and-shoulders pattern and indicates an accelerated move to the downside may follow.
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The Marathon Digital Chart: Marathon’s head-and-shoulders pattern isn’t confirmed because the right shoulder hasn’t been completed. If Marathon digital continues to reject the possible descending neckline of the pattern, traders and investors can watch for a rounded retracement to take place, which could set up the second shoulder.
- If that happens, Marathon may reverse course into a strong uptrend. Regardless, if the stock breaks up from the trendline on higher-than-average volume, an uptrend on the weekly chart may be in the cards.
- Marathon is already trading in an uptrend on the daily chart, with the most recent higher low formed on Oct. 3 at $10.39 and the most recent confirmed higher high printed at the $11.83 mark the day prior. If Marathon closes the trading day with a candlestick with an upper wick, the next higher high may have occurred, making it likely the stock will trade lower on Friday.
- Marathon has resistance above at $14.56 and $19.51 and support below at $9.93 and $7.79.
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