Coinbase Stock Forms Death Cross, Offers 37% Rebound Potential

Coinbase Global (COIN) has faced significant challenges this year, with macroeconomic conditions weighing heavily on tech and digital stock assets. The Nasdaq index experienced an 8% decline last week, and further declines are anticipated ahead of the upcoming "Liberation Day" on Wednesday. As a result, COIN stock has been on a downward trajectory, forming a death cross pattern on its daily chart. This technical pattern, typically seen as bearish, is actually presenting a short-term buying opportunity for COIN stock.

It is important to note that major cryptocurrencies are inherently unpredictable, and the uncertainty surrounding Donald Trump’s administration has only exacerbated this volatility. However, the death cross pattern forming on COIN's price chart offers a unique technical signal that can be interpreted counterintuitively. The death cross occurs when a shorter-running moving average slips beneath a longer-running one, often indicating a potential downturn or bear market. In Coinbase’s case, this signal suggests that the stock may be oversold and poised for a rebound.

On a fundamental level, investing in COIN stock at this moment is risky due to unfavorable external circumstances. However, the technical dynamic of the death cross creates an opportunity for traders to speculate on a potential bounce back. The 50-day moving average for COIN stock is at $239.50, while the 200-day moving average is at $232.25, creating a gap of just over 3%. Additionally, the stock is trading near a long-term support line around the $170 level, which could attract traders looking for a bargain.

Historical data supports the idea that going contrarian on the death cross could be beneficial. Between January 2022 and September 2024, there have been three death crosses for COIN stock. In each instance, the stock was up one month after the signal appeared, with an average return of almost 37%. While this sample size is small, it suggests that the death cross could offer contrarian value for aggressive traders. It is also possible that the stock has already priced in the negative sentiment, making the signal a potential buying opportunity.

For traders looking to capitalize on COIN’s death cross, an options-based strategy could be effective. If the death cross occurs this week, one could assume that COIN stock will rise by double-digit percentage points within a month. A simple options strategy would be to buy the $180 call for the options chain expiring May 2, which would become deep in the money if COIN stock rises above $191. Another approach is the bull call spread, involving buying the $170 call and selling the $190 call for the May 2 expiration date. This strategy could yield a maximum payout of almost 65% if COIN stock hits the $190 target.

Analysts on Wall Street have given COIN stock a Moderate Buy consensus rating, with 11 Buy ratings, nine Hold ratings, and zero Sell ratings over the past three months. The average price target of $330.79 per share implies approximately 90% upside potential over the next twelve months. Despite the impending death cross, historical trends suggest that this technical pattern could provide a short-term buying opportunity for COIN stock. By plotting a bullish options strategy aligned with their risk tolerance, traders can capitalize on COIN stock in the short term.