Ethereum Technicals: A repetition of a buying & selling opportunity?
Since the beginning of 2018, the entire crypto space has been in a bear market. Prices of individual coins and tokens have dropped just short of tripple digit percentages (yes, 100% is the maximum drawback possible, I am aware). Latest wonderchild Ethereum has been no exception to this story. Prices have dropped from roughly $1424 in January 2018 to a low of $83 in December (Bitfinex). That was a drop of over 94% and I don’t think the horror story is finished just yet. Let me explain.
A rise from the bottom
The lows of $83 have triggered a correction to the upside, where the price is currently hovering between $150 and $160. That is a steep recovery, but nothing out of the ordinary within cryptoland. Volume has also kicked up massively, where current levels are exceeding that of the cryptocraze of late 2017.
A new Ethereum hardfork called ‘Constantinople’ is expected to happen at block height 7,080,000, which should occur the 16th of January. This event has been expected to drive up the price, which can also explain the massive buying volume. As for the massive selling volume, ICO withdrawals have increased dramatically since the beginning of November. November and December have been the biggest months for ICO treasury withdrawals, possibly (likely) explaining the Ethereum sell offs.
But.. I digress…
A double price-action pattern
As we zoom in on the chart of Ethereum, using the 12-hour chart, we can see a ‘head & shoulders’ inversely developing. This typically indicates a reversal in the price of the underlying, which seems to be the case for Ethereum as well. Targets for such patterns depend on the distance between the neckline of the pattern and the height of the head. The distance between the two is commonly the expected increase from the breakout of the neckline. In this case, the targeted price increase is roughly +$58 when the neckline is broken to the upside. This would bring a price target for Ethereum of ~$228 (breakout around $170) for the Bitfinex exchange.
However, this pattern is enveloping within a rising wedge. Commonly, a rising wedge (at the bottom) indicates downside potential upon breakout to the downside.
Having both patterns develop at the same time is a tricky situation, as a trade in either direction has the possibility of going against you. However, it seems that the combination of the two patterns is not unusual for price developments of Ethereum.
History tends to repeat itself, once more?
The combination of patterns mentioned above have been sighted multiple times in the past for Ethereum. In the snapshot below I highlight two previous events that look eerily similar to what is currently developing. The first event started to develop in early-mid July of 2017 and broke down in early September. The second event started to develop in mid March of 2018 and broke down in early-mid May. In both instances, the price first hit its minimal target price of the head & shoulders pattern (buying opportunity), before breaking down shortly after (selling opportunity). The minimal price retracement was 50% with both events.
As soon as current price levels exceed ~$170 (neckline), the target for the head & shoulders pattern is triggered. Only once this happens, the price target is activated. This implies that we could easily see an increase of at least 30% from there, completing the head & shoulders target. Once that has occurred, we should keep an eye out for the support line (green) of the rising wedge. If it fails to hold (estimated to be around ~$210), acceleration to the downside is expected.
Update: The neckline has been tested multiple times today (5th of January), but has yet to be decisively broken. The price is currently holding the $160 mark nicely, but we could see a slight pullback towards the $154 area, making a new higher low. A decisive (complete candle) drop below $150 with the consecutive candle trading lower invalidates the H&S and triggers more downside potential (12-hour chart).
Update 2 (Jan 7): After the surge in Bitcoin prices last night, Ethereum prices failed to hold $163 and failed to make a new higher high. Prices are currently clinging on to the support line of the rising wedge/ascending triangle. Volatility and volume are significantly lower as prices are being squeezed into the point where support and resistance meet, seemingly indicating a wait-and-see approach from traders. Within the next couple of days, we will see a decisive break in either direction, most likely with an increase in volume and volatility.
Final Update (Jan 10): After several days of indecisiveness, the price finally broke down and out of the rising wedge formation. As depicted earlier, the $150 level was an important area. Once breaking down and moving past the prior low of $146, the price collapsed. Slightly in tandem with Bitcoin. The minimum target for the price drop should be around $95. This estimate is based on deducting the width of the wedge (~$60, measured from the bottom of the wedge). Personally, I think we can go lower, but that is just a bias for now. Will probably make another post when the time comes.
What I have also noticed is another smaller head & shoulder pattern that I have missed. Shown with a yellow neckline and corresponding labels in the image below. The target for this head & shoulders has been precisely hit (slightly extended).
From inspecting the charts, it seems as though Ethereum is luring oblivious investors into a dead-cat-bounce. By publishing this technical write-up, I intend to increase the awareness of individuals on the possibilities of what the future might hold for Ethereum’s price. This should by no means be treated as investment advice. This is entirely intended to complement your own due diligence.
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