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ETHUSD’s Phenomenal Rally Cannot Last Forever

The market capitalization of Ethereum, the largest cryptocurrency after only Bitcoin, is currently in the vicinity of $46 billion with its price hovering around $470 per coin. Two months ago, though, things were not looking that good for the bulls. On September 14th, ETHUSD was closer to $270, wandering in no man’s land between the all-time high of $412 and the July low at $136. Without the help of a trustworthy analytical method, Ethereum’s next direction would have been anybody’s guess. Fortunately, the Elliott Wave Principle helped us identify a pattern on the chart below, which then became the subject of an article, called “Ethereum’s Elliott Wave Pattern Points North”.

elliott wave analysis ethereum ethusd

The pattern in question was the famous 5-3 Elliott Wave cycle. A five-wave impulse between $136 and $395, followed by a three-wave correction, which it turned out, was still not over. Nevertheless, the retracement was not supposed to erase the entire progress achieve by the impulsive pattern, so as long as ETHUSD was trading above $136, the odds were going to remain in favor of the bulls. The positive outlook was also supported by a bullish divergence revealed by the RSI indicator. This chart was all we needed to come to the conclusion that “Ethereum looks ready for another attempt to exceed its previous all-time high at $412.” Two and a half months later now, here is how things went.

ethusd elliott wave analysis november 28

As already mentioned, the price did not reverse to the north right away. It fell to as low as $198 first. What is important is that the invalidation level at $136 was never put to a test, so all crypto traders had to do was stay calm and wait for the bulls to do their job. Five days ago, on November 23rd, ETHUSD reached a new all-time high of $418 and moved on to touch $492 yesterday.

It has been a good and profitable run. The problem is that no trend lasts forever. Blindly relying on Ethereum‘s to continue is a dangerous game to play. As visible, the count has changed, because as time passed, a bigger pattern emerged on the chart. What we though was a 5-3 cycle, now fits into the position of waves B and C of a large triangle. Triangles precede the final wave of the larger sequence. In that case, it does not matter much whether the triangle should be labeled as a B-wave or a fourth wave. What matters is that the current rally is supposed to be the last wave of the larger pattern, which means that once it is over, a major bearish reversal should be expected.

Assuming the rise from the end of wave E of the triangle is going to evolve into a five-wave impulse, we see that the bulls still have all chances of reaching the $500 mark. After that, though, caution would be required.