Ethereum in 2020 has seen a period of high volatility following the infamous March crash to $80 and its subsequent slow grind up towards establishing a bullish market trend. After a long period of consolidation in June and a breakout triggering the run to the recent high of $440, ETH could be setting up for its next move higher. The following will present the bullish case for ETH going into Q4.
Thesis 1: Market Structure
Market structure is the primary element that informs a trader’s directional bias (whether they are looking to long or short). To attain a bias, we must identify the market structure of the asset on a higher timeframe to ascertain if the current trend is bullish, bearish or trendless.
The trend in 2019 was clear as shown by the consecutive lower swing highs (LH) and lower swing lows which is characteristic of bearish market structure. Identifying the previous swing high at $290 before the March crash was the pivotal level to be broken in order to flip from a bearish bias to a bullish bias. A clean break of that level would invalidate any bearish market structure argument as it successfully established its first higher high since the 2018-2019 bear market.
After the previous swing high had been broken price worked its way towards weekly supply ($350-378) that provided sufficient resistance for the formation of the 2019 swing high. Price proceeded to break this key area of supply with volume and upon retracement the level is acting as demand indicating resistance has now become support.
Thesis 2: Weekly Ichimoku E2E Trade
The Ichimoku indicator primarily used as a visual representation of the current market trend using prices position in relation to the Kumo cloud (the large red area) is providing key signals for a bullish trend continuation. A Ichimoku setup known as an edge-to-edge (E2E) trade triggered on the weekly timeframe in July which is known for signalling a huge trend reversal.
An E2E Ichimoku trade consists of three clear triggers in order to execute and is considered a high probability trade meaning the trade has a higher win rate compared to other setups. The triggers to execute a bullish Ichimoku E2E trade are as follows:
- The Tenkan sen (blue) crosses above the Kijun sen (red) either below or inside the Kumo cloud commonly referred to as a TK crossover.
- The Chikou span (light blue) is above price and working its way towards the Kumo cloud or resides within it.
- Price closes inside the Kumo cloud on the timeframe the trade is executed on. This is the key and final trigger to execute the trade.
The exit trigger for the completion of an E2E trade is price reaching the other side of the Kumo cloud. So far price remains inside the Kumo cloud and currently consolidating at key weekly demand which is indicating another leg higher to complete the E2E trade.
Lower Timeframe Analysis
The daily chart is also displaying long signals as shown by the TD sequential indicator which serves as a tool for identifying pivot points in which a trend becomes exhausted. This tool is excellent to use in trending markets and can identify with high precision when a higher low is forming meaning sellers are becoming exhausted and buyers will once again step in to continue the trend. A TD9 buy signal at a key weekly level of demand is a strong indication that ETH is getting ready for its next leg up.
On the lower timeframe sellers have dominated the trend over the last week until price reached the weekly range low level and 4-hour demand. In order to be confident that the higher timeframe buy signals were correct price must break the lower timeframe market structure by breaking through the previous lower high at $410 and then re-entering the previous range in order to form a base that will take out the swing high.
There has been a confirmed break in market structure that is now attempting to establish a higher timeframe bullish trend which is also backed by the high probability weekly E2E trade that is yet to complete. Sellers have now become exhausted as shown by the TD9 buy signal on the daily chart at a key weekly level that is now acting as demand. At this present time these are just signals of a reversal and not the reversal itself. Price must re-establish a bullish trend and break the $440 swing high to which we will see ETH climb to $500 and above.