Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be considered investment advice
Ethereum was in a steady downtrend and has been since April. The selling pressure has been so intense that even long-term investors who hadn’t sold ETH in a year had been forced to sell. What was the most likely path forward for ETH on the price charts?
Since 12 May, the USDT dominance metric has been falling. It dropped from 6.75% on that day, to stand at 6.05% at press time. This development suggested that people who were holding Tether had deployed their capital.
Market participants who previously fled to stablecoins have now begun to enter the crypto markets once more, and this suggested that some of the fear of the past few weeks could be reduced.
ETH- 1 Day Chart
Source: ETH/USDT on TradingView
In late March, the previously bearish market structure was broken and ETH teased at a bullish bias. However, as April began, ETH was forced to drop below the $3000 mark, highlighting the strength of the bears. Moreover, the previous lows at $2200 and $2500 in January and February respectively were both broken in recent weeks.
The $1750-$1950 area (cyan box) represents an area of demand that Ethereum rallied strongly from in July and August of 2021. However, as things stand, a rally was not yet evident.
A bullish engulfing candle, for a start, could be a sign of strong buying. A move past $2150 would not necessarily mean the market was bullish on the longer timeframes, but it would indicate that the $2350 could be revisited before another move downward.
Rationale
Source: ETH/USDT on TradingView
The RSI remained below neutral 50, to show a bearish trend in progress. However, the RSI has been making higher lows in recent days, and this could develop into a bullish divergence if ETH drops below the $1890 mark.
The DMI showed a strong downtrend in progress as well, as the ADX (yellow) and the -DI (red) were both above the 20 mark. The CMF was well below the -0.05 mark in recent weeks and indicated heavy capital flow out of the market. The OBV was in agreement with the bearish notion as it saw a strong dip in the month of May.
Conclusion
A drop below $1900 could see a bullish divergence get reinforced on the daily chart. In confluence with the high timeframe demand zone, a bounce to the $2000 and even $2200 could materialize.
However, buyers would need to remain cautious of a dive below the $1800 mark for Ethereum, as another wave of selling could be a possibility over the next week.
