Ethereum - Consolidating Nicely - Setting up For a Breakout

Overview:

Ethereum' has been consolidating in a descending triangle which often leads to a breakout. Now why I have ignored the a wedge type correction? I believe that the extreme pullback was simply nothing more than noise, due to the derivatives collapse in VIX' futures as I explained in a prior article. Ignoring this noise there is a clear descending triangle, forming an ABCDE wave pattern. Ethereum' also tends to lag Bitcoin', so in the context of market sentiment this type of corrective pattern makes sense as Bitcoin has started, in my opinion, the first leg of a bullish move. Descending Triangles are often used by traders as a signal for consolidation before a continuation, however, context of the broader market will determine the overall success rate of a breakout and eventual bullish continuation. This is critical in understanding the difference between seeing a triangle formation on a chart and understanding why the triangle is forming. The trend is always the underlying factor in our positioning not connecting dots on a chart.

Technical:

The 790 has proven to be an important level of support and resistance. Looking back to December, prior to the breakout and ATH', there was consolidation a pullback and then a strong breakout at this level. During the correction this level has proven to be an important sentiment level for traders as buyers were quick to buy as evident from the long wicks. Other than the short term breakdown, which I consider noise, this level has proven to be a solid support level. All we need now is a catalyst.

The 770-790 levels are critical to hold in order to confirm this corrective pattern. With the formation of the outside daily bar, which often signals a reversal, I am looking for a breakout of the upper leg of the triangle with a strong continuation move. A bullish breakout is confirmed above the 945 level where we have an initial target zone of 1042 to 1099 and a longer term target zone of 1427-1453. We are likely to retest the previous ATH' before moving higher or having a broader term correction. One area I am looking to see if a bearish reversal forms is the 1199-1243 areas.

I personally am looking to add between the 820 (0.382 retracement) and 790 support level. The extreme 0.618 retracement level of 723 will surely find buyers, but the 790 level has proven to be the critical support level so a breakdown of this level would leave me thinking a further correction or double bottom is likely before moving higher, so I am going to exercise patience before adding here. Bitcoin' had a three legged correction so it would not be inconceivable to get one here I just do not see it likely as sentiment is slowly turning positive and additional coins are introduced to the market on the ERC20 platform.

I personally am looking to add between the 820 (0.382 retracement) and 790 support level. The extreme 0.618 retracement level of 723 will surely find buyers, but the 790 level has proven to be the critical support level so a breakdown of this level would leave me thinking a further correction or double bottom is likely before moving higher, so I am going to exercise patience before adding here.

Conclusion:

I am still of the mind that 2018 will be the year of the smart coin. Ethereum' is by far the most widely used platform for tokens. Though there will be challengers for this market, including NEO' which is one of my favorites, Ethereum' still retains the Lion’s share of the market penetration and until we see a clear contender we should be positioned accordingly if you are a conservative investor. Other than Ripple', Ethereum' leads in transaction volume and is second only to Bitcoin' in money sent and active wallet addresses. This is important as widespread adoption takes place. Ethereum' is considered both a digital fiat currency and a smart coin.

Kommentar:

Why I made the assumption that the overall dip was noise is simple as we posted on our weekly report. There was a correlation with every market from Bonds, to gold, to stocks, to cryptos when the VIX spiked the sunday evening market open. Now when the market normally tanks you see a run to safe havens like bonds and gold, but they tanked as well. This is simply because larger trading floors and traders that had been selling risky VIX derivatives products had to sell other assets to cover their margin requirements. I can not show all of them but here is the clear correlation.

As an investor/trader in all these markets the correlation was clear. This shouldn't be happening. Of course once the yield spiked due to the selloff algo's started selling equities to go into bonds. This created a domino effect that lasted 2-3 days. But 6 days later the market is within 2-3% of its ATH and overall the markets as a whole have stabilized.

This is the threat that will cause the next meltdown the derivatives market.

Kommentar:

And yes traders that trade risky derivatives also trade cryptos. I was one of them.

Kommentar:

This chart gives you a real perspective of the magnitude of the selloff.

Kommentar:

As Ethereum breaks out we want to exercise patience before entering a position here. Keep in mind we sold at 1224 and though we bought those back, we want to add for a swing trade. Though 945 is still a target level there is an extension at the 905 level that I'm interested in seeing if we get a throwback out of the triangle. Being it is only 15 away from the current level and often we get a retest of the upper trend line, the risk reward is worth waiting for. I am looking to add between the 845 and 865 area.

As the market overall is showing some bullish signs, we want to exercise patience and come in slowly not getting caught up in the FOMO. There is always opportunities somewhere.