Cryptocurrencies appear to be regaining poise following last week’s news from China, with the ether-US dollar exchange rate (ETH/USD) rising to a four-day high of $316.73 today.
Such a move might first appear like a rebound. The digital currency fell to a low of $291 on Friday and extended losses to $276 over the weekend on both China’s formal ICO ban, as well as its rumored, but still unconfirmed, ban on exchange trading.
Despite the recovery, however, there are signs ether is still feeling the heat of the ICO ban.
While ether moved above $300, the bullish move lacks substance as suggested by weak volumes. All in all, the cryptocurrency is having a tough time scoring big gains above $300.
China’s crackdown on ICOs may be bad for the market, but it’s worse for ethereum, as its blockchain allows people to write “smart contracts” that release new tokens to investors when a certain amount of ether, the digital currency that powers ethereum, is received.
As per CoinMarketCap, ethereum has gained 3.11% in the last 24 hours. At press time, the digital currency traded at $302 levels. Week-on-week, the ETH/USD pair is down 4.4%. On a monthly basis, ETH is up just 3%.
Daily chart – Recovery lacks substance, Potential Head & Shoulders reversal
The chart above shows highest volume was seen on September 9, when prices dropped from $350 to $275. Since then, an anemic recovery is seen in prices, while volumes have steadily dropped. Thus, the recovery from the low of $275 lacks substance, i.e. an absence of fresh buyers means the recovery could be a product of profit taking on the shorts.
Head and Shoulders is a chart formation that predicts a bullish-to-bearish trend reversal. It works best when formed at the top of the uptrend as is the case with ether. A break below the neckline [line drawn from two lows] marks a trend reversal.
A nice topping pattern could be unfolding on the daily chart – The breach of rising trend line followed by a completion of the head and shoulders pattern.
The 5-day moving average and the 10-day moving average is sloping downwards and did cap the upside in prices today. The downward sloping moving averages suggest potential for another dip in prices.
- Ether’s recovery is likely to be short lived. Prices could revisit $275-$266 levels. An end of the day close below $266 would indicate the rally from the low of $136 has ended.
- On the higher side, only a break above $338.66 [Sep 7 high] would revive the bullish view.
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