Despite the bearish sentiment prevailing in the futures market and among traders, Ethereum’s recent price action provides a glimmer of hope, as it hints at the possibility of a short-term reversal to reclaim the 200-day moving average.
The Daily Chart
Ethereum’s price has been in a prolonged downtrend after failing to surpass the $2.1K mark. Sellers successfully pushed the price below the 100-day and 200-day moving averages, around $1.8K, resulting in a multi-month low of $1,531.
However, Ethereum’s price found critical support between the 50% and 61.8% Fibonacci retracement levels, with values of $1,646 and $1,529, respectively.
Despite the bearish market sentiment, the cryptocurrency has shown bullish signs, particularly a clear bullish divergence between the price and the RSI indicator. This suggests a potential change in the market’s trend. If the price can reclaim its prior significant swing high, traders can expect a period of steady price appreciation, aiming to regain the 200-day moving average.
The 4-Hour Chart
We can observe a consistent downtrend when we focus on the 4-hour timeframe. The price has been consistently breaking below its previous swing lows and forming a prolonged descending wedge pattern (marked by white trendlines).
However, after a sharp, impulsive decline, the price has now reached the critical $1.5K support region, which coincides with the lower boundary of the wedge. In this region, we can see the formation of another short-term bullish descending wedge pattern characterized by red trendlines.
Furthermore, a bullish divergence has emerged between the price and the RSI indicator on Ethereum’s 4-hour chart. This further suggests the potential for a rebound in this price region.
If buying pressure intensifies and leads to a breakout above the upper threshold of the short-term wedge, market participants could anticipate a surge toward the $1.7K resistance level. This resistance level also aligns with the upper trendline of the long-term descending wedge pattern. Therefore, it is crucial to closely monitor price action around these critical levels, as they are likely to determine Ethereum’s mid-term trajectory.
While Ethereum has displayed bearish price action in recent weeks, it is essential to examine the futures market to gain insights into how futures traders anticipate short-term price performance.
The chart illustrates the Ethereum funding rates metric, which represents periodic payments made to traders, either long or short, based on the difference between perpetual contract markets and spot prices. Funding rates reflect traders’ sentiments in the perpetual futures market, and negative readings indicate a prevailing bearish sentiment.
As the price of Ethereum has entered a consolidation phase following a period of sharp declines, the funding rates have also turned negative. This indicates that futures traders have adopted a pessimistic outlook on ETH, increasing the possibility of a further price drop. However, it is worth noting that consistent negative funding rates can potentially trigger a cascade of short liquidations, which in turn could lead to a sudden price rebound.