This analysis is very similar to my recent Bitcoin analysis (twin sister). It seems all cryptos are generally following Bitcoin’s price movements in this major correction. So you can apply the ideas here to pretty much any crypto. I’ll do this analysis separately for Ethereum so you can see just how similar they are.
The move passed $267 invalidated some key requirements of Elliott Wave Theory in regards to subwave numbering of the ABC corrective wave. Therefore, we need to re-analyze and renumber waves.
There are two possibilities here. The first is that the ABC corrective wave has completed and that we are in the early stages of a bull trend. The second is that the ABC corrective wave is even deeper than originally thought, and we are just nearing the end of corrective subwave B of the ABC correction. However, market analysis doesn’t only consist of technical analysis, we also need to consider fundamental analysis, and market sentiment. The three pillars of market analysis.
Fundamentals are weak, given the political environment in China, and the announcement by the Chinese government that all crypto exchanges will need to be closed by end of Sept. with a grace period being given to a couple exchanges to the end of Oct. What this means is that there will likely be a large migration of volume to other asian markets, likely Korea, Japan, and others. In addition, it is also highly likely, that many Chinese will just sell and withdraw their Chinese Yuan, and so this news is highly bearish for Bitcoin and Ethereum and all cryptos in general, as Bitcoin sets the overall market trend.
Market sentiment is still quite bearish. There is a market-wide feeling of fear, uncertainty, and doubt. There is a feeling of distrust of the recent bull move, seeing it as a kind of bull trap before even deeper lows are realized. It seems many are quite content to sit on the sidelines, waiting it out until things stabilize and there aren’t so many contradictory signals.
Given this, I am of the view that we are very mush still entrenched in a bear market and the second scenario that we are moving to deeper lows is much more likely.
It appears that we are nearing the end of the B wave of a larger ABC correction. This B wave has a notorious reputation for being a bull trap, as it can appear quite aggressive. We may still have some room to continue the B wave a little above $300, but when it finishes, we should begin the C wave of the ABC correction. And this wave has the potential to bring us down to the lows of the previous major correction ($138).
So the ABC correction looks very roughly like this:
A wave: $400-$200 B wave: $200-$300 C wave: $300-$100 (or perhaps a little higher)
Preliminary price targets for wave 2 correspond to wave 1 fib. retracements of 0.764, 0.854, and 1.0 giving $199, $176 and $138. In addition, we have the 0.618 and 1.0 extension of wave A at $179 and $103.
On top of this, the 200 day moving average (1d candlesticks) passes just above the target price territory.
Also, establishing a parallel descending trend channel for the current ABC correction, shows that we can reach all of our targets without ever leaving this channel.
Lastly, experimenting with the Fibonacci sprial tool shows how these price targets can touch the spiral with target lows reached sometime in very early October. The chart is scaled so that this fib. spiral aligns with the fib. time-based extension tool, for calculating wave C as the time-based fib. 1.0 extension of wave A.
Target I: Wave 2 ≈ 0.764 x Wave 1 ($199) Target II: Wave C ≈ 0.618 x Wave A ($179) Target III: Wave 2 ≈ 0.854 x Wave 1 ($176) Target IV: Wave 2 ≈ 1.0 x Wave 1 ($138) Target V: Wave C ≈ 1.0 x Wave A ($103)
Comment
⋅
It appears we have a double/triple bottom at $254 on 1h candlesticks. If we continue to bounce and break through the neckline at $270 it could continue right up to $284. However, if it starts to approach this point, price may find resistance near the top of the trend channel at the $277 price point which is also the fib. 0.618 retracement of the wave 1 structure from $300 to $254.
Comment
⋅
Top of double bottom reached at $280.
Comment
⋅
Mini head and shoulders pattern formed. If we break the neckline at $277 we could be heading down to $268 in short order.
Comment
⋅
Mini head and shoulders pattern nullified. Some consolidation is occurring with a rising wedge pattern forming which is considered a reversal pattern. Watch for the break.
Excellent work. My analysis has reached the same conclusion. Clean, insightful chart and intelligent reasoning. Thank you.
dalmazio
⋅
@Saylo, Thanks! And thanks also for the confirmation.
EtherSwinger
⋅
It looks like price rebounded very well today after hitting the double bottoms.
If I'm reading your chart correctly, did we just reached the end of leg 2 and about to start leg 3 of the larger correction C wave?
dalmazio
⋅
@EtherSwinger, yes it was a good bounce. And your reading of the chart is exactly right.
EtherSwinger
⋅
@dalmazio, if the current bull trend breaks 300, would that resulted in higher lows/highs and possibly suggesting that we're no longer in the abc correction phase?
dalmazio
⋅
@EtherSwinger, yes, if it breaks passed 300 then we would have to look at how to renumber the waves. One possibility would be as you say, where we have already completed the ABC wave, and the 1st subwave of a higher order bullish wave 3. But that will need to be confirmed with repeated higher lows/highs. The other possibility is that this upward movement if it passes 300 could be a continuation of the B wave (ABC corrections can sometimes be complex, with chaining of components that can move sideways for a time), in which case we haven’t yet begun the C wave. Until market sentiment changes, I would still favour the latter though.
EtherSwinger
⋅
@dalmazio, thank you for the thorough analysis and response.
I have learned a lot reading your TA and posts!!!
@dalmazio, one thing about EW is that no matter how the trend goes, Elliott is always right and the one who incorrectly predicted has to redraw.
Many scenarios can play out and we can still draw Elliott to fit them...making it kinda random don't you think?
dalmazio
⋅
@EtherSwinger, actually I don't. What I discovered about EW (and the reason why it's always right) is that it is a map of human emotion as it translates into order flow. And this has a fractal nature to it. What this means is that you could be wrong in your view at a higher level of the fractal, but correct at lower one. For example, I might be wrong that we are in an overall bear trend downwards (maybe we've already completed it?), but within that I can generally predict smaller price movements, corresponding to the different waves, and corrective waves, which is fine for swing trading, since it follows the same rules. At some point, the larger view will go in a completely other direction than expected (if my larger view is wrong), and that's when you say, oh, out of the several views available, I chose the wrong one, time to correct my view. But, that's where other TA tools, fundamental analysis, and market sentiment come into play: they help us increase the chances of choosing the correct overall EW view from the start. I'm going to make a couple of posts on this shortly, to show what I mean in context.