Ethereum Hidden & Classic Divergence Suggest Massive Retrace Due
Updated
Ethereum has had a massive uptrend, almost doubling in value in a couple of weeks and I think the time for a retrace is due. The chart on the left show that ETHUSD has been in a falling wedge since early April but has been channeling in and through that wedge since mid-August. The top of the channel and the RSI show clear Hidden Bearish Divergence on the daily time frame. When we zoom in on the pennant break out we see Classic Bearish Divergence between our top on the 23rd and the top today.
Next up is the cheat sheet I like to post about divergences because it is easy to get them shuffled up in your head.
Classic Divergence (Trend Reversal)
Bearish: Higher highs on price action but lower highs on the indicator
Bullish: Lower lows on price action but higher lows on the indicator
Hidden (Trend Continuation)
Bearish: Lower high on the price action and higher highs on the indicator
Bullish: Higher low on the price action and a lower low on the indicator.
The left chart has the MACD, which shows the oscillator has been generally trending upward and is wedging. When the price action breaks down my current expectation is that the MACD will approach the dashed support line and then recover again. The approach may or may not touch or break through, my decision on reversal or continuation will be backed up by chart patterns and candle sticks, as well as what ever divergence we have.
The MACD is only shown for the left chart because the current uptrend since December is just viewed as one move up and doesn’t give us any hints as what will happen next. Each of the scenarios below would need to be confirmed by indicators, hopefully both with hidden and classic divergences since we are hoping for a reversal.
ETHBTC Confirmation
The Ethereum/Bitcoin trading pair often provides confirmation to trend reversals for Ethereum or Bitcoin, as Ethereum will often gain faster or lose quicker than bitcoin. And we see that the trading pair has Classic Bearish Divergence on both the MACD and RSI., and a rising wedge as well. As with the rising wedge we see on ETHUSD I would prefer more points of contact on the support and resistance, but don’t always get what you want.
Hull MACD
The Hull MACD is made up of hull moving averages rather than exponential moving averages and so it does not behave the same, but in general when the histogram begins to approach zero the trend is about to reverse and on the 3D chart we see we are descending on both ETHUSD, BTCSD, and ETHBTC. We still have some room in those pennants for the price action to scootch up a but, but ultimately the trend should be reversed.
Likely Scenarios
Double Bottom
The price action finds support on the mid-line of the channel
The price action gets smacked down viciously and we test the wedge as support
Continue to channel down
The most devastating and painful option is the price action finds the bottom of the channel one more time before we recover. I consider this the least likely option but it is on the table.
Least Likely But most Bullish Scenario
We have been respecting this pitchfork for the whole uptrend. If we find support on the base with a lot of bullish divergence we should be on our way back up. Definately bears close watching.
Final Thoughts
It is really hard to sell or short when you see the price going up but we have a lot of reversal structure. If you are short or long protect your positions either way and of course, this isn't financial advice, I am not your financial adviser and if I am wrong I don't even know you, we never met.
Next up is the cheat sheet I like to post about divergences because it is easy to get them shuffled up in your head.
Classic Divergence (Trend Reversal)
Bearish: Higher highs on price action but lower highs on the indicator
Bullish: Lower lows on price action but higher lows on the indicator
Hidden (Trend Continuation)
Bearish: Lower high on the price action and higher highs on the indicator
Bullish: Higher low on the price action and a lower low on the indicator.
The left chart has the MACD, which shows the oscillator has been generally trending upward and is wedging. When the price action breaks down my current expectation is that the MACD will approach the dashed support line and then recover again. The approach may or may not touch or break through, my decision on reversal or continuation will be backed up by chart patterns and candle sticks, as well as what ever divergence we have.
The MACD is only shown for the left chart because the current uptrend since December is just viewed as one move up and doesn’t give us any hints as what will happen next. Each of the scenarios below would need to be confirmed by indicators, hopefully both with hidden and classic divergences since we are hoping for a reversal.
ETHBTC Confirmation
The Ethereum/Bitcoin trading pair often provides confirmation to trend reversals for Ethereum or Bitcoin, as Ethereum will often gain faster or lose quicker than bitcoin. And we see that the trading pair has Classic Bearish Divergence on both the MACD and RSI., and a rising wedge as well. As with the rising wedge we see on ETHUSD I would prefer more points of contact on the support and resistance, but don’t always get what you want.
Hull MACD
The Hull MACD is made up of hull moving averages rather than exponential moving averages and so it does not behave the same, but in general when the histogram begins to approach zero the trend is about to reverse and on the 3D chart we see we are descending on both ETHUSD, BTCSD, and ETHBTC. We still have some room in those pennants for the price action to scootch up a but, but ultimately the trend should be reversed.
Likely Scenarios
Double Bottom
The price action finds support on the mid-line of the channel
The price action gets smacked down viciously and we test the wedge as support
Continue to channel down
The most devastating and painful option is the price action finds the bottom of the channel one more time before we recover. I consider this the least likely option but it is on the table.
Least Likely But most Bullish Scenario
We have been respecting this pitchfork for the whole uptrend. If we find support on the base with a lot of bullish divergence we should be on our way back up. Definately bears close watching.
Final Thoughts
It is really hard to sell or short when you see the price going up but we have a lot of reversal structure. If you are short or long protect your positions either way and of course, this isn't financial advice, I am not your financial adviser and if I am wrong I don't even know you, we never met.
Note
Least Likely But most Bullish Scenario[\b]I could not get this to fit with the word count but here is what I consider the least likely option, but is the most bullish.
We have been respecting this pitchfork for the whole uptrend. If we find support on the base with a lot of bullish divergence we should be on our way back up. Definately bears close watching.
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