Crypto’s, especially Bitcoin and Ethereum, have been on fire! The intraday price action during US market hours has been fascinating. Many people are talking about the chaos in Washington. Honestly, the markets really did not care. The only major chart of worry is the VIX . The 10 year did not fall, which we would have expected if money was running into risk off assets like bonds. As a CNN broadcaster once said, this turned out to be a “nothing burger”.
The stock markets did not sell off as many expected. In fact, the Dow Jones and the Russell 2000 made all time record highs. The pullback during the ‘chaos’ just pulled back to the retest of the breakout zone. Don’t let emotions get in the way. Stay focused (or BASED as they say it now a days). Market structure is king. We trade the markets we see, not the markets we want to see.
The US Dollar and Gold did not really make the moves people expected…although Gold has made a major pullback which is part of our long trade. Read about the Gold long trade that I am currently in here.
Getting back to crypto’s, the major crypto’s ( Bitcoin and Ethereum ) sold off during the ‘chaos’, but then quickly reversed on the intraday to make new daily highs…RECORD ALL TIME HIGHS for Bitcoin. In fact, Bitcoin continues to make record all time highs today with price trading above 38,000.
Was this just the momentum and mania? Or was Bitcoin and other major crypto’s acting like safe havens? My readers know my opinion, I believe this is all a hunt for yield as investors price in more monetary and fiscal craziness, and crypto’s are a way to get out of fiat currency. The key being a trade out of fiat. This theme continues…and the confidence crisis in governments, central banks and the fiat currency is already occurring!
Today, I want to take a look at the chart of Ethereum and also what price levels to look at next. Ethereum has had quite the run with the move in the major crypto’s and the hype around Ethereum 2.0. As the crypto bulls and enthusiasts say: Bitcoin is like Gold and is a store of wealth, whereas Ethereum will be used as money. As the money for the internet.
What is Ethereum 2.0? From their website:
“Eth2 refers to a set of interconnected upgrades that will make Ethereum more scalable, more secure, and more sustainable. These upgrades are being built by multiple teams from across the Ethereum ecosystem.”
In summary more bigger and better…and faster.
Onto the charts.
Months ago (September), we looked at the breakout of Ethereum on the weekly chart here on Market Moment. Specifically highlighting the break above the 350 resistance zone. Look how important that zone was. A major FLIP zone (an area that has been BOTH support and resistance ). Such a beautiful chart. The market structure that we look for: a downtrend and then a major range before initiating an uptrend which was triggered above the break of 350.
The trigger was the candle CLOSE above 350. Once again: we wait for candles to CLOSE above their price zones. If the close and the momentum is too fast, we patiently await the pullback to enter because nothing moves up or down in a straight line.
As we know, we should expect price to retest the breakout zone as support (price floor) before seeing buyers jump in and momentum continuing higher. This can take sometime. In the case of Ethereum, price was retesting for 10 weeks! Just a bit over two months! This needs to be brought up because as a trader, you are allocating capital to this trade and missing out on other opportunities. The opportunity cost in economics. As an investor with a longer timeframe, these two months are fine because your analysis and set up remains valid. Just keep this in mind.
After 10 weeks of retesting, momentum finally took us above 440 which confirmed a higher low in a new uptrend. So far only one higher low in this weekly uptrend. Generally, I like to see at least two. But this confirms just how strong the momentum is.
Our first resistance target was the flip zone at 800. If you go down to the daily chart , you will see there was some selling there and a battle. But in the end, the buyers penetrated resistance quite easily. Now, what was once a price ceiling becomes the new price support.
Ethereum remains in an uptrend as long as price stays above 800. We could potentially see a pullback to that level, but momentum just seems too strong right now.
The next major resistance level is above at 1350. This is the next target to the upside. Will we have the momentum to break above it? I think yes given my base case on money entering crypto’s to get out of fiat. More crazy monetary and fiscal policy is coming. We have not seen anything yet.
So once we get that weekly candle close confirming the break above 1350, what comes next? Time to pull out the fibonacci tool. Just a reminder, Bitcoin surpassed my fib extension targets I gave to my readers, and members of Equity Guru’s Discord Trading Room, before Bitcoin made record all time highs.
Here is my fib chart, and excuse the crunch of my y axis to show the extension levels above. But first of all, I want to draw your attention to the small blue arrows. I fibbed the lows to the all time highs, and look how well the fib levels act like major zones attracting price action as marked by my blue arrows. A very nice and valid fibonacci!
As you can see my first target above new highs would be 1760, and the finally 2298 (2300). These are our targets once we break above into new highs. Remember: we want to see the weekly candle close above the weekly body at 1350, and if price does pullback, we need to see this level hold as support.
So in summary, expect Ethereum to test previous all time highs, and there is a high probability it makes all time record highs. This morning, Marketwatch put out an article stating the cryptocurrency market cap has surpassed 1 Trillion. This is just the beginning of the crazy monetary and fiscal policy to combat covid going forward.