A Medium-Term Analysis Of ETH/USD Trading

With many of the top cryptocurrencies experiencing what may be described as a nosedive in prices, what is the long term trade outlook for those interested in the ETH/USD pair?

Fundamental Outlook

Ethereum prices have been hit particularly hard by the recent bearishness seen in the cryptocurrency markets. Ethereum has hit 9-month lows, on the back of what some Bloomberg analysts are calling an “ICO cashout” effect.

What is the “ICO cashout” effect all about? Many Initial Coin Offerings (ICOS) that were launched in 2017 and 2018 featured ERC20 tokens, which are based on the Ethereum blockchain. Many investors that bought into those ICOs are being spooked by the crypto market situation, thus they are presently cashing out on their ICO bonuses and also selling off the altcoins they bought during the ICOs. Typically, these altcoins are sent back from the exchanges to Ether-wallets, converted to Ether and then sold off for fiat currency. With a lot of Ether on sale right now, prices are taking a hit. You can even monitor several of these accounts here.

It should be recalled that Ether prices peaked at above $1400 in February 2018 at the peak of the ICO boom. Many of these ICOs did not permit investments using fiat currency, so investors sought to buy Ether as one of the few means by which tokens could be purchased.

Technical Outlook

Any technical analysis must be done with a long term, medium term and short term view. The weekly chart is the chart of choice for the long term view of any asset, as it usually features price action over a few years, and indicates the real trend of an asset. The medium term outlook features price action over a period of a few weeks or months. The 4-hour and 1-hour chart showcases the price action over a few days and features a lot of market noise; this makes them unsuitable for proper technical analysis. The short term charts are useful for specific trade entries and exits, using the information obtained from analysis of the longer time frame charts.

With where prices of Ethereum are right now, it is impossible to know exactly how to trade the ETH/USD pair or any other Ethereum pair in the market using the short term charts. We must therefore look at the weekly chart for ETH/USD to get a picture of what is happening and where prices will be headed for the rest of 2018. We will use ETH/USD as the basis for our analysis on this crypto, as it is by far the most traded ETH pair in the crypto market.

The weekly chart for ETH/USD shows that the price action has resumed the downward trend, confirming the downside breakout of the triangle marked by the descending triangle trendline resistance (A) and the previous horizontal support (B) at $390.

Within this triangle, we also saw a bearish flag setup. A flag is a continuation pattern, so it is expected that as price bubbles around in consolidation within the flag, the price action will eventually breakout in the direction of the initial trend. So it is no surprise that price action eventually broke to the downside. We see this in the chart below.

Description: C:UsersPCDocumentsEric Granteth_usd_weekly_.png

ETH/USD Weekly Chart

With the price action having broken the previous support at $390 (line B), the next logical target would be the next area of support which is seen at the $263 mark. This support level has been tested several times and even violated, with price heading as low as $253. However, the weekly candle is still in progress, and until it closes, we cannot make a determination of whether a break of the new support level has occurred or not. So far, this support area has held firm, and the close of the weekly candle will determine whether this level will hold or not.

So what would be the outlook for the ETH/USD pair moving forward?

The sentiment for the market in the long term is presently bearish. Not much has happened in the cryptocurrency market to spur buying sentiment. Even if Ethereum/USD were to make a recovery at the present support levels, such a recovery would be brief. This is because the descending trendline resistance which formed the upper border of the initial descending triangle is still intact. This trendline has to be broken by any rally for any further upsides to be seen.

That said, there is hope for a brief rally from present levels, but this is contingent on the support line at $263 remaining intact. We can see that there is a possibility for the formation of a divergence pattern. The momentum indicator formed two quick bottoms at the same area in April 2018. However, the momentum indicator would need to form a higher bottom for the divergence setup to be confirmed. At the moment, that has not happened.

Market Sentiment

The long term, mid-term and short term outlook of the ETH/USD pair is:

  • Long Term – Bearish
  • Mid-term – Bearish
  • Short term – Slightly Bullish

Trading Advice

Wait for the week to close and study the relationship between the closing price of the weekly candle/bar and the support line at $268. Two scenarios may play out.

Scenario 1: The first scenario assumes that the week will end with the weekly candle closing above the support line. This would prompt a short term rally that may play out in three ways.

  1. If the candle closes above the support line at $263, and the momentum indicator makes a higher low, then we will have a divergence setup. Prices may make a very brief move upwards, but this is expected to be resisted at the descending trendline. If this is the case, then another short trade can be initiated at that trendline. In other words, you may decide to sell on the rally to the descending trendline, to follow the trend.
  2. If the price moves upwards from the $263 support line and breaks above the descending resistance trendline, then there would be a further rally. This would be supported by the divergence setup.
  3. If you look closely at the chart, line A (the descending trendline) and line C, another line which connects the April 2018 support and the recent support, jointly form a falling wedge. This wedge pattern will be validated if the price action is able to break above the descending upper trendline by closing above it. This would then prompt a long trade, using a shorter timeframe chart to get a sound technical basis for entry.

Scenario 2: The second scenario assumes that the week will end with the weekly candle closing below the support line, which is a breakout. However, the breakout is only confirmed if the candle closes below the support line with at least 3% penetration. This means that the after closing below the support, the distance between the broken support line and the candle’s closing price must be at least 3% of the length of that candle.

If this breakout to the downside is confirmed, this would do the following:

  1. Invalidate all the assumptions in the first scenario.
  2. This would open the door to further downside, aiming to get to the July 2017 support at $151, with some intervening short term rallies along the way.

This is how the ETH/USD pair is expected to trade in the coming weeks and months. This piece is for educational purposes only and should not be construed as a recommendation to buy or sell ETH at any price. The cryptocurrency markets are very volatile and require that the user is well-funded and has a good amount of trading experience.

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Disclosure: I am/we are long ETH-USD.

Business relationship disclosure: This article was written in partnership with an analyst; we have no relationship whatsoever with the Ethereum team

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