A Substantial Counter-trend Rally Should Now Be Underway for Ethereum

Two weeks ago, see here; I concluded for Ethereum (ETH, Ether), “The weekly chart suggests wave-a down is, soon, complete and wave-b back up to ideally about $4250+/-250 should, soon, be underway.”

Fast forward, and ETH dropped to $2160 on January 24^th and has since rallied 38%. Thus an Elliott Wave Principle (EWP) based update on what is most likely next is warranted.

Figure 1 below shows the weekly chart for Ether. There are now enough waves in place to suggest the first leg of the correction is complete (black, major wave-a), and a substantial counter-trend (black, major wave-b) is now underway, as I already eluded to would happen two weeks ago.

Figure 1. ETH weekly chart with EWP count and technical indicators.

As long as last week’s low holds, a B-wave (B is for Bounce) should be underway.

I am aware Figure 1 is quite busy with many indicators, letters, numbers, etc. But it provides a wealth of information that can determine the weight of the evidence for what is most likely next. First up, the red dotted arrows showing ETH went higher on less strength, momentum, and money put in. That is called negative divergence, and eventually, the cryptocurrency succumbed to it.

Second, as soon as ETH lost the 20-week simple moving average (SMA) as support, it fell to and through the 50-w SMA into the Ichimoku Cloud (the Cloud), showing the importance of both for Ethereum’s price. The Cloud provided support, and now ETH printed its 2^nd up week in a row.

This has not happened since the decline from the all-time high (ATH) started. Besides, the RSI5 is also turning back up, and the FSTO is giving a buy signal from oversold levels. Meanwhile, ETH is trying to get back above the 50-w SMA. Thus overall, the weight of the evidence supports the notion a critical low is struck, and a trend change should be underway. After three months of selling, buyers appear to be stepping in. But it is too early days to call victory.

Thus, as my premium crypto trading members know, any correction always consists of at least three waves: wave-a, wave-b, and wave-c. Sometimes more, but never less. The now preferred Primary-IV scenario is no exception. Or as I stated last: “From an EWP perspective, it means wave-a of wave-IV is likely, or soon, complete, and wave-b (b for a bounce!) should then commence.”

How high the B-wave will travel exactly cannot be known with certainty, but a 50% retrace of the previous A-wave decline is a reasonable “middle-of-the-road” estimate. Once more price data becomes available, I can narrow the bounce target zone down. For now, a counter-trend rally to around $4000+/-250 is preferred.

That level is also prior resistance. Please note that B-waves are price structures with potentially several hard-to-forecasting twists and turns. Why? Because B-waves comprise three waves themselves as well. Thus, although the upside target zone, for now, seems an easy call, the way to get there may be frustrating on a day-to-day basis. Once wave-b completes, I expect wave-c to move the price of Ether back to around $2000+/-200 from where the next multi-year primary-V rally to ideally $9K+/-1K can start.

Bottom line: On January 20^th, I found, “The weekly chart suggests wave-a down is, soon, complete and wave-b back up to ideally about $4250+/-250 should, soon, be underway.” With a 37% rally since the January 24^th low, that “soon” came soon enough, and the counter-trend rally should now be underway as long as that low holds. Since ETH dropped more down, the ideal bounce target zone is adjusted lower to $4000+/-250.

But this “dead cat bounce” is likely to be a somewhat overlapping affair, so I will have to track and monitor the price action judiciously for my premium crypto trading members over the next several weeks to anticipate and mitigate as many surprises as possible. Regardless, the weekly chart setup is now as good as it gets for the Bulls to usher in a decent rally.