TALKING TECHNICALS

Things are looking good for the world’s two biggest cryptocurrencies

This column focused a spotlight on the technical breakout in bitcoin in July. That’s when the cryptocurrency popped through the $10,000 resistance level on pretty large volume.

The break above $10,000 was significant, as that was a level where the price had topped out several times over the past year. It’s also a resistance level that joined all the prior tops since the bitcoin price peaked in late 2017.

The price of bitcoin suffered sharp losses in March but recovered quickly. The fact that the price recovered so quickly in a V-shaped fashion was an encouraging indication that the buying interest was strong at the lower levels, and that the demand pressure was still there even during the sharp weakness.

If one had to draw a comparison for the trading activity over the past few months, it’s a bit like pushing a ball underwater. The further under the ball goes, the harder it is to keep it down. And when the pressure is released off the ball, it pops up and breaks through the surface of the water.

That’s very much like the trading action here. After the deep sell-off in March, the downward pressure was released in the second quarter of the year and the price recovered sharply to ultimately “break through the surface” at $10,000. That break above $10,000 was bullish.

In technical analysis, what was previously resistance often becomes support when the price pulls back. In this case, the $10,000 previous resistance is now support. There’s a thick band of congestion between $9,500 and $10,000 that now offers solid support into the current pullback.

The current pullback looks like it could be a good opportunity to buy the dip in what is a generally bullish chart setup.

Ethereum is the second-largest cryptocurrency platform by market capitalisation behind bitcoin. Much like bitcoin, it saw a massive spike in late 2017 and then a spectacular crash in 2018. Over the past two years the price has been flatlining and forming a base below $300.

Since the March 2020 low the price has been gradually rising and recently broke out through the overhead resistance area at $300. That is a very bullish development after the two-year basing process that has played out.

There’s a saying in technical analysis that “the bigger the base, the higher into space”. In this case, there is a large base that has built over the past two years and the breakout above $300 now validates a bullish break with significant further upside potential. The $300 level now presents support into any near-term weakness. Technically one should now be looking to accumulate ethereum into a pullback towards $300 with a medium term view. Near-term target will be the recent high at $500 but the length of the base suggests further meaningful upside is possible.

In a world of monetary expansion where there seems to be a desire to own decentralised assets that are finite in their supply, there is noticeable technical bullishness creeping into assets that fit the criteria. Think gold, silver and, yes, cryptocurrencies such as the two mentioned here. ●