Ethereum: Measuring the real potential to “buy that dip”
Warning: The conclusions of the following analysis are the sole opinions of the author and should not be taken as investment advice.
Since its ATH, the alt king has seen a strong downward trend over the past four months. The descent saw a clash between buyers and sellers at the $3,100 checkpoint (POC, red).
Assuming the altcoin sticks to its historical trends, ETH aims to test the $2,862 level before entering a possible phase of low volatility on its Bollinger Bands (BB). Short-term retracements may find support at the $2,500 mark before the alt continues to make higher lows.
At press time, ETH was trading at $2,736.6, up 6.42% in the past 24 hours.
ETH Daily Chart
Since falling from its POC, the altcoin has seen several bearish engulfing candlesticks on boosted volumes that propelled ETH to its six-month low on Jan. 24. Additionally, the BB average (red) held as strong resistance throughout the fall.
Interestingly, ETH formed a descending widening wedge (white) over a longer time frame (one month). Historically, the alt has experienced a strong reversal from its 13-month uptrend line support (yellow, dotted). This reversal rally then stopped at the POC. Over the past month, ETH has also formed a falling wedge (reversal pattern) on its daily chart.
Can the second largest crypto repeat its history? If so, a potential retest of the $3,100 POC is on the cards in the coming days. But before that, it will face barriers at $2,800. This level is a confluence of its immediate resistance as well as the 50 EMA (Cyan). Thus, a possible test of its trendline support before reversing its figure should not surprise investors/traders.
With the RSI marking higher lows, it diverged bullishly with price and confirmed buying strength at its trendline support. Going forward, a close above the middle line would increase the chances of a further rally towards the 54 point resistance.
Additionally, the MACD lines were about to perform a bullish crossover. If they cross, they still have to cross the zero line to claim unbridled bullish momentum.
Given the harmony between several factors, a short-term pullback of $2,800 seemed likely. Following this, if the bulls gather enough strength on increased volumes, a patterned breakout could be looming around the corner. On top of that, investors/traders should keep a close eye on Bitcoin’s movement, as ETH shares a 94% 30-day correlation with it.