ETH-USD UPDATE: Bear Flag Pattern - Sub $100 Potential Breakout
Updated
I believe that Ethereum is sitting at a very key point where we could see sub $100 prices in the next two weeks or the beginning of a long-term reversal. My analysis is based off of two very simple patterns and builds upon my previous analysis of a 4 hr bear-flag formation.
My last published idea covered a 4 hr descending triangle pattern continuation recognized by Audicted when ETH was in the $280+ range. The pattern predicted ETH dropping into sub $200 territory, all the way to $170. This marked the point of the first bear flag in my analysis, formed off of the September 11th, 2018 low. This flag extended out to September 23rd with an upward limit of $257. Ethereum stayed within the flag before breaking down to the September 24th low that was right above the 2205/ETH mark. I expected a bigger price decline at that point and from there I saw another bearish flag formation starting.
My originally published bearish flag pattern from the September 24th low extended to October 1st, it called for a $235-$245 short entry depending on risk tolerance and an exit before $200. Stop losses were a tight 5% of 256, assuming that if the price were to break the upper limit of the flag then the bearish pattern would have failed and new analysis would be required. From the call on September 28th to now, September 30th, ETH has traded within this second bearish flag trend.
I am updating my idea based upon further development of the trend and subsequent data points, and I am also amending my suggested entry points. My updated analysis, chart below, reflects 3 new considerations.
First and most basic, the second smaller bear flag formed off of the Sept. 24th low has been extended out to October 15th. This flag is represented by the two blue lines connecting to the initial drop highlighted by the purple line and other potential legs down following the flag pattern.
Second, the yellow and green larger initial bear flag formed off of the Sept. 12th low was adjusted to meet the September 24th low as well as the September 21st high. Originally the September 21st high for the yellow flag was still within the range, but the September 24th low had broken through the original lower bound of the first yellow bear flag. This update reflects that development in the trend. From there the flag was extended outwards along the same range as the blue and purple flag.
Third I have readjusted my entry and exit points. With how erratic this market has been, and some long term trends I am seeing potentially developing, I am now waiting to enter this trade only if it breaks below the lower blue line on the smaller flag. I will stop loss the trade along the height of the upper blue line. This represents a stop loss of 5% throughout the blue flag pattern. If ETH moves upwards past the upper blue line and towards the upper yellow line I will be reevaluating entry points. Any short entry point below the upper yellow line along the timeline should be profitable but I am proceeding cautiously due to the possibility of a long term trend that contrasts to this bearish pattern I am following. I have alerts set along the blue line and corresponding four hour windows.
If the trend continues and ETH breaks the lower blue line then it has the potential to very quickly break the lower yellow line as well. I believe this would present with large downwards pressure with ETH going sub $170. Depending on entry point this could result in a 25%+ gain without leverage.
My second longer-term analysis is prompting caution on this trade, which is why for now I will be trading only within the upper bounds of the blue flag and not the larger yellow, though if it breaks the larger yellow I will be looking to capitalize on a large downwards breakout.
In the long-term [using 1 day chart] I am seeing both a small rising wedge and also a large falling wedge. These are both very basic patterns, but I believe they are useful for this analysis.
The (Purple) large falling wedge takes points from the peak of the ETH price bubble in mid-January and one of its lows in early-December right before a 60% upwards movement followed by more massive upward movements to the peak of the wedge. I believe the September 11th sub $170 low is an important data point on this falling wedge. I would argue that if it had fallen below that point there would have been very little support for ETH on the way down. I believe this longer-term trend is worth being cautious as there seems to be potential at this $230+ price range for ETH to break above the upper purple wedge line and confirm the pattern.
The (yellow) smaller rising wedge has formed within the (purple) large falling wedge. The wedge begins with the $280+ ETH highs in early September and the September 11th low off of the 4hr descending triangle referenced. What I see as most interesting in this chart is how the rising wedge appears to converge upon the upper bound of the falling wedge. In my opinion I think we are about to see a major breakout in one direction or the other. If the rising wedge pattern confirms then ETH should drop away from the upper purple falling wedge line towards the lower purple wedge line. When this happens the falling wedge pattern would likely be denied and ETH could fall drastically to the sub $100 range.
However, if ETH breaks out of the rising wedge then it could mean the falling wedge pattern would be confirmed shortly after and we would begin to see a long-term reversal.
An overlay of the large falling and smaller rising wedge patterns on top of both the yellow and blue bear flag suggests that we could see this explosive negative price movement within the next week or two, or the beginning of a longer-term slow reversal. The three largest patterns all intersect on October 8th with a price of $240. I believe the smaller blue flag could be an early indicator. If at this point in time ETH is trading above the lower line of the yellow flag, above $240, I think we could begin to see a long term reversal taking place over a long period of time and this could be confirmed by ETH exceeding the upper bound of the yellow flag. Consequently, if it breaks out below the yellow flag lower bound and the lower bound of the rising wedge then we could easily see a steep decline and a continuation of the long-term trend to sub $100 levels.
I believe the short side of this trade is a stronger position especially considering the trend following within bearish flag patterns. I believe there are also some fundamental aspects of Ethereum that lend towards a short position. Furthermore, the long-term falling wedge that would signal a long term reversal is based upon prices that formed during a speculative bubble, it could easily be a false indicator. A confirmation of this pattern would only mean there is potential for the reversal to begin, but I would not expect any large upwards price movements right away.
To reiterate my position, I am entering on the short side of this trade along the lower lines of the yellow and blue bear flags, and stopping out at the upper blue flag. I believe the trade would be profitable with a stop loss as high as the upperbound of the larger bear flags yellow line but I am playing in this tighter range until October 8th due to my analysis of long-term movements.
My last published idea covered a 4 hr descending triangle pattern continuation recognized by Audicted when ETH was in the $280+ range. The pattern predicted ETH dropping into sub $200 territory, all the way to $170. This marked the point of the first bear flag in my analysis, formed off of the September 11th, 2018 low. This flag extended out to September 23rd with an upward limit of $257. Ethereum stayed within the flag before breaking down to the September 24th low that was right above the 2205/ETH mark. I expected a bigger price decline at that point and from there I saw another bearish flag formation starting.
My originally published bearish flag pattern from the September 24th low extended to October 1st, it called for a $235-$245 short entry depending on risk tolerance and an exit before $200. Stop losses were a tight 5% of 256, assuming that if the price were to break the upper limit of the flag then the bearish pattern would have failed and new analysis would be required. From the call on September 28th to now, September 30th, ETH has traded within this second bearish flag trend.
I am updating my idea based upon further development of the trend and subsequent data points, and I am also amending my suggested entry points. My updated analysis, chart below, reflects 3 new considerations.
First and most basic, the second smaller bear flag formed off of the Sept. 24th low has been extended out to October 15th. This flag is represented by the two blue lines connecting to the initial drop highlighted by the purple line and other potential legs down following the flag pattern.
Second, the yellow and green larger initial bear flag formed off of the Sept. 12th low was adjusted to meet the September 24th low as well as the September 21st high. Originally the September 21st high for the yellow flag was still within the range, but the September 24th low had broken through the original lower bound of the first yellow bear flag. This update reflects that development in the trend. From there the flag was extended outwards along the same range as the blue and purple flag.
Third I have readjusted my entry and exit points. With how erratic this market has been, and some long term trends I am seeing potentially developing, I am now waiting to enter this trade only if it breaks below the lower blue line on the smaller flag. I will stop loss the trade along the height of the upper blue line. This represents a stop loss of 5% throughout the blue flag pattern. If ETH moves upwards past the upper blue line and towards the upper yellow line I will be reevaluating entry points. Any short entry point below the upper yellow line along the timeline should be profitable but I am proceeding cautiously due to the possibility of a long term trend that contrasts to this bearish pattern I am following. I have alerts set along the blue line and corresponding four hour windows.
If the trend continues and ETH breaks the lower blue line then it has the potential to very quickly break the lower yellow line as well. I believe this would present with large downwards pressure with ETH going sub $170. Depending on entry point this could result in a 25%+ gain without leverage.
My second longer-term analysis is prompting caution on this trade, which is why for now I will be trading only within the upper bounds of the blue flag and not the larger yellow, though if it breaks the larger yellow I will be looking to capitalize on a large downwards breakout.
In the long-term [using 1 day chart] I am seeing both a small rising wedge and also a large falling wedge. These are both very basic patterns, but I believe they are useful for this analysis.
The (Purple) large falling wedge takes points from the peak of the ETH price bubble in mid-January and one of its lows in early-December right before a 60% upwards movement followed by more massive upward movements to the peak of the wedge. I believe the September 11th sub $170 low is an important data point on this falling wedge. I would argue that if it had fallen below that point there would have been very little support for ETH on the way down. I believe this longer-term trend is worth being cautious as there seems to be potential at this $230+ price range for ETH to break above the upper purple wedge line and confirm the pattern.
The (yellow) smaller rising wedge has formed within the (purple) large falling wedge. The wedge begins with the $280+ ETH highs in early September and the September 11th low off of the 4hr descending triangle referenced. What I see as most interesting in this chart is how the rising wedge appears to converge upon the upper bound of the falling wedge. In my opinion I think we are about to see a major breakout in one direction or the other. If the rising wedge pattern confirms then ETH should drop away from the upper purple falling wedge line towards the lower purple wedge line. When this happens the falling wedge pattern would likely be denied and ETH could fall drastically to the sub $100 range.
However, if ETH breaks out of the rising wedge then it could mean the falling wedge pattern would be confirmed shortly after and we would begin to see a long-term reversal.
An overlay of the large falling and smaller rising wedge patterns on top of both the yellow and blue bear flag suggests that we could see this explosive negative price movement within the next week or two, or the beginning of a longer-term slow reversal. The three largest patterns all intersect on October 8th with a price of $240. I believe the smaller blue flag could be an early indicator. If at this point in time ETH is trading above the lower line of the yellow flag, above $240, I think we could begin to see a long term reversal taking place over a long period of time and this could be confirmed by ETH exceeding the upper bound of the yellow flag. Consequently, if it breaks out below the yellow flag lower bound and the lower bound of the rising wedge then we could easily see a steep decline and a continuation of the long-term trend to sub $100 levels.
I believe the short side of this trade is a stronger position especially considering the trend following within bearish flag patterns. I believe there are also some fundamental aspects of Ethereum that lend towards a short position. Furthermore, the long-term falling wedge that would signal a long term reversal is based upon prices that formed during a speculative bubble, it could easily be a false indicator. A confirmation of this pattern would only mean there is potential for the reversal to begin, but I would not expect any large upwards price movements right away.
To reiterate my position, I am entering on the short side of this trade along the lower lines of the yellow and blue bear flags, and stopping out at the upper blue flag. I believe the trade would be profitable with a stop loss as high as the upperbound of the larger bear flags yellow line but I am playing in this tighter range until October 8th due to my analysis of long-term movements.
Note
Keep an eye out on the lower bound of both the small blue bear flag and the larger yellow bear flag. The last time the MACD crossed on the 8hr we saw a nice leg down that almost extended past the lower yellow line, which could have resulted in a large breakout.
We are coming in close to another MACD 8hr cross downwards, while the trend is especially close to the lower bound of both bear flags. I believe if it crosses in the next eight hours that we may see another strong leg down. I am watching the MACD indicator and I have alerts set from the $225 - $219 price range.
My original strategy was to enter at the upper bounds of the flags to maximize profit, however since I believe we are in a key point between a major downwards breakout or the start of a recovery, I am playing this trade cautiously and looking to enter only when the breakout has started.
Any thoughts or suggestions are more than welcome.
Trade closed: target reached
Last night I entered this trade at 2223.50/ETH and kept my position open until I closed out at 217.50/ETH. This was a quick turnaround for a 2.68% gain. Nothing major, but I entered the trade at 25x leverage which netted a nice 67%+ gain on this trade.
ETH did not drop as much as I had anticipated on the cross so I closed out the position when I noticed support forming above $217.50. The price has since stabilized. I will be watching this trend over the next couple days to determine if I want to enter again or if a short position is even viable.
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