On September 1st the price of Ethereum climbed to $395, making the impression the second largest cryptocurrency was going to reach a new all-time high very soon. Unfortunately for the bulls, ETHUSD reversed to the south for a 35% plunge to as low as $256 as of yesterday, September 13th. Crypto investors are starting to feel a little nervous already, wondering if it is time to abandon ship, especially after China’s announcement that the country is banning all cryptocurrency exchanges. Our way of dealing with that type of uncertainty is to put on the Elliott Wave lens and see what the market would reveal through its charts.
According to the Wave principle, a five-wave pattern, called an impulse, indicates the direction of the larger trend. As the chart shows, Ethereum price rose in five-wave manner between $136 and $395, suggesting the bulls are still in charge. On the other hand, before the trend could resume, every impulse is followed by a three-wave correction in the other direction. In our case, this should be the recent decline to $256, which took the shape of a W-X-Y double zig-zag retracement. The good news is that once the correction is over, the trend resumes in the direction of the impulsive sequence. If this is the correct count, Ethereum looks ready for another attempt to exceed its previous all-time high at $412. In addition, the relative strength index shows a bullish divergence between the lows of waves W and Y, indicating the selloff is losing momentum.
Nevertheless, trying to pick the very bottom is an extremely risky endeavor, that usually does more harm than good. Instead, for trading purposes, we prefer to wait for confirmation. Here, the bullish reversal would be confirmed once the price rises past the top of wave (b) of Y of (B) at $316.