Ethereum’s native token Ether, (ETH), looks set to go through a major breakdown in May. It forms a convincing “bear pennant” structure.
Price of ETH to $1,500
Since May 11, ETH’s price has been consolidating within a range defined in two converging trendlines. The sideways movement coincides with a decrease in trading volumes, indicating that ETH/USD could be painting a bear pennant.
Bear pennants can be described as bearish continuation patterns. They resolve when the price breaks below its lower trendline. The price then falls to the same height as the previous move down (called the flagpole).
Chart of the USD/ETH price at 2:20 PM. Source: TradingView
This technical rule could lead to Ether closing below its pennant structure. Then, Ether will make further moves to the downside.
The flagpole of ETH is approximately $650 high. If the price falls below the pennant’s peak point at $2,030, then the structure’s bearish goal will be below $1500. This is more than 25% lower than today’s price.
Pullback, not a sell-off
The profit target for the bear pennant falls in the same area that predated a 250% price rise in the February-November 2021 session. The target is also close to Ether’s 200 week exponential moving average (200 day EMA; blue wave), which currently stands at $1,600.
In theory, Ether traders could be prompted to acquire tokens by the demand zone in anticipation of an upside retracement.
If it does happen, then ETH’s interim profit target for price would be the multimonth downward sloping trendsline that has been resistance in a “falling channels” pattern as shown in the chart below.
Weekly chart of the ETH/USD exchange rate. Source: TradingView
ETH has been recovering after it tested the demand zone (and its lower trendline), as support. This could cause ETH/USD, which is roughly 50% higher than today’s price to reach its upper trendline at $3,000 by June.
Extended breakdown scenario
Worst-case scenario is ETH falling below the demand area, due to macro risks and their effect on the crypto market in 2022.
Related: Crypto risks of $1.9T crashing into stocks and bonds — Tether stablecoin in focus
Ether’s decline has been more than 50% in the quarter to date as investors decrease their exposure to riskier assets like Bitcoin (BTC), and tech stocks in a higher rate environment.
Cointelegraph reported that cryptos could be affected by additional stock market sales, which could lead to Ether, Bitcoin and Cardano (ADA) being weighed down.
The correlation coefficient of Ethereum and tech-heavy Nasdaq100 100 is 0.90. Source: TradingView
BOOX Research, a financial blogger for SeekingAlpha, is long-term bullish about Bitcoin, Ethereum and the wider crypto market, but believes that a recovery could take several years. Extracts from the note:
“While some of these corrections may have shaken out the hot money’, there is still the risk that a deteriorating macroenvironment could lead to even greater losses. You should do your research before making any investment or trading decision.