Bitcoin is in the spotlight once again after Bakkt was granted the first approval from the CFTC for physically-settled Bitcoin futures. As the pioneer cryptocurrency takes the attention from the market, most of the altcoins have been left behind even plummeting to new yearly lows. The following technical analysis will explore how Ethereum, XRP, and Litecoin could perform in the short term future now that they have recently taken a nosedive.
Ethereum retracted more than 50 percent over the last few weeks to reach a low of $174, for the first time since mid-May. The correction comes after ETH peaked at $366 on June 26. This is the steepest pullback that Ethereum has had since the bull run started in December 15, 2018. As a matter of fact, throughout the year every time this cryptocurrency reached a new yearly high, it retraced 28.40 percent on average.
By measuring the Fibonacci retracement indicator from the low of $80.70 on December 15 to the high of $366 on June 26, it appears that Ethereum retraced to the 61.8 to 65 percent Fibonacci retracement zone. This Fibonacci retracement area is considered by many traders as the ‘golden’ retracement zone due to the high probability of a rebound.
If Ethereum is indeed likely to rebound from the current price level, it could find resistance on its way up around the 50 and 38.2 percent Fibonacci retracement levels, which are sitting at $223 and $256, respectively. However, a break below the 65 percent Fibonacci retracement level could take it down to $143, where the 78.6 percent Fibonacci retracement level sits at.
Based on the 1-day chart, Ethereum recently broke out of an ascending triangle. As a result, this cryptocurrency went down to $174 to reach the target given by the bearish formation. Now that the ascending triangle can be considered complete, the TD sequential indicator is giving two different buy signals.
The first one is an aggressive thirteen that formed on August 15. The second one is a red nine candlestick that predicts a one-to-four day upswing or the beginning of a new upward countdown. These bullish signals align with the potential rebound that the Fibonacci retracement indicator presents on the 3-day chart. Therefore, there is a high probability for a rebound that could take Ethereum to the 50 percent Fibonacci retracement level.
After going through a consolidation period that lasted more than a month, XRP broke below the $0.30 support level for the first time since October 2018. The result was a 21 percent plunge that took this cryptocurrency to reach a new yearly low of $0.24. This price level represents a pivotal point for XRP’s trend, according to 40-year trading veteran Peter Brandt.
The author of Diary of a Professional Commodity Trader believes that if the $0.24 support level is not able to hold the price of XRP, then this cryptocurrency could be bound for a major drop that takes its market valuation to around $0.021, representing a 90 percent retracement from current levels.
— Peter Brandt (@PeterLBrandt) August 14, 2019
Fundamentally, such a steep decline could occur if the complaint filed against Ripple—arguing that the startup illegally sold unregistered securities—is pursued by the U.S. Securities and Exchange Commission. If the motion is taken into consideration by the regulatory agency, XRP’s market valuation could suffer severe consequences. The recent legal actions taken by the SEC against Veritaseum, which took its price down more than 60 percent within a few hours, could be taken as an example of the impact that such news could pose for XRP.
In the meantime, while the SEC responds to the recent complaint filed against Ripple it will be wiser to remain out of XRP. Based on the 1-week chart, this cryptocurrency could soon drop down to the next level of support that sits around $0.19 if the selling pressure behind it increases.
Based on the Fibonacci retracement indicator (which is composed of horizontal lines that refer to areas of support and resistance associated with a percentage based on how much of a prior move the price has retraced) Litecoin spent over a month consolidating between the 38.2 and 50 percent Fibonacci retracement area.
Since the consolidation phase took place after a 48 percent pullback that took this cryptocurrency from $147 to $76, a bear pennant developed on the 3-day chart. This is considered a continuation pattern that leads to a breakout in the same direction as the initial movement. As a result, this bearish formation forecasts a 25 percent drop to around $66, which is taken by measuring the height of the flagpole.
So far, Litecoin dropped 22 percent to reach the 61.8 percent Fibonacci retracement zone, which can be taken as a completion of the bear pennant. Now that LTC is trading around the 61.8 percent Fibonacci retracement level, it could be bound to rebound since this area is considered as the ‘golden’ retracement zone.
If Litecoin indeed rebounds from the current price levels, it could find some level of resistance around $85, which is where the 50 percent Fibonacci retracement zone is at. However, a break below the 61.8 percent Fibonacci retracement level is a strong signal of a trend reversal from bullish to bearish.
The 12-hour chart indicates that the ‘golden’ retracement zone will indeed allow LTC to rebound. Under this time frame, a bullish divergence between the relative strength index (RSI) and the price of LTC can be seen forming.
Divergences occur when an oscillator such as the RSI disagrees with the actual price movement. Thus, an RSI making a series of higher lows while prices are declining is indicative of an improving trend and the probability for a trend change increases.
In addition, the TD sequential indicator could soon give a buy signal in the form of a red nine. If validated, this bullish signal forecasts a twelve to forty-eight hours upswing or the beginning of a new upward countdown. An increase in the buying pressure behind this cryptocurrency could validate all the bullish signals previously mentioned taking it up to the 50 or even the 38.2 percent Fibonacci retracement, as seen on the 3-day chart.
Despite the recent correction seen across the entire cryptocurrency market, it seems that Ethereum and Litecoin could soon resume their bullish trend. As a matter of fact, the Crypto Fear and Greed Index (CFGI) hit its highest levels of pessimism since December 2018, which is a strong bullish sign.
The last time this technical index reached the “extremely fear” level was in mid-December 2018 and was succeeded by a 35 percent upswing in the market cap on the entire cryptocurrency market. Although the GFGI only analyses the daily emotions and sentiments around Bitcoin, it serves to determine the direction of the industry as a whole.
On the other hand, due to the regulatory uncertainty that surrounds XRP investors should remain cautious on whether the U.S. Securities and Exchange Commission will classify this cryptocurrency as an unregistered security or not. Until then, it will be wiser to stay out of it.