Ethereum - "News rally" doomed to fail?

After we abandoned our bearish bias on Ethereum last Friday, it rose by more than 30% just within three days. The media's narrative is that this move comes as “the merge” approaches Ethereum, which will drastically decrease its carbon footprint. That will be allowed due to Ethereum utilizing proof-of-stake instead of proof-of-work, which it currently uses to solve complicated mathematical problems in return for the cryptocurrency. Despite that, technical factors also strongly contributed to the recent price rise. However, we would like to voice a word of caution as bearish fundamental factors will persist throughout 2022; these elements include higher interest rates in the U.S. and around the globe, economic tightening, and an increasing prospect of a global recession. Because of that, we still believe that Ethereum has not bottomed out. Indeed, we think the current price bounce may turn into an ultimate bull trap as we continue to see mounting calls for the bottom and market participants trying to buy every possible dip. Such behavior does not reflect market capitulation. Additionally, the magnitude of moves does not reflect the bull market. Instead, it hints at classic bear market rallies, which are often fast and strong. Therefore, we think the current price is attractive for short re-entry, which should be accompanied by tight stop-loss (as we still see limited upside for ETHUSD).

Illustration 1.01

The yellow arrow indicates the bullish breakout. We will pay close attention to the volume and if it is sufficient to sustain the rally for a little longer.

Technical analysis - daily time frame
RSI is bullish, and if it breaks above 70 points, then it could elevate ETHUSD higher. However, if it fails, then the trend reversal might be imminent. Stochastic is bullish. MACD is bullish. The same applies to DM+ and DM-. Overall, the daily time frame is bullish.

Illustration 1.02

Long-term moving averages, 20-week SMA and 50-week SMA, remain bearish. Moving averages on the daily chart are less bearish; however, the bullish crossover did not occur yet.

Technical analysis - weekly time frame
RSI turned bullish recently. MACD and Stochastic are neutral. DM+ and DM- are bearish. Overall, the weekly time frame is turning neutral.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

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The idea was updated in the following post: