ETHUSD: Major Support Zone Ahead Of The Hearings?

4 Feb 2018

ETHUSD update: Judging by the bigger picture, this market has not sold off as dramatically as the others. In fact, price has rejected the 872 to 739 support zone twice, leaving behind long wicks in both instances. Although this market can retest lower prices, it is in a relatively better position to rally. In this report I will highlight the possibilities both bullish and bearish.

First of all, these markets are extremely emotional. The majority of participants in my opinion are not institutional or professional which means when the sentiment is bullish, it is very bullish, and when bearish, it is very bearish. It also means that these markets are highly susceptible to news and drama. Right now the big problem on the horizon is the Senate hearings this week. The heads of the SEC and CFTC are most likely not going to say anything positive about these markets, but no matter what, they are not going to stop the changes that are taking place from an economic and technological perspective. Governments are in place to control, especially the money supply. The U.S. government is infamous for devaluing the dollar for a whole host of reasons that are often at the expense of the little guy. One of the main reasons BTC was created was to give back some control to the little guy.

With that being said, events such as the hearing, and other regulatory actions only serve to scare the market temporarily, not drive it to become obsolete. If anything, regulation will bring stability to this market over the long run. Stability is good for long term investors and institutions, but minimizes opportunities for short term speculators, especially inexperienced ones. I do not write about market philosophy often, because it is more of a matter of opinion, but in this case I think it helps to shed light on why I choose to be generally bullish in the face of bearish momentum. This is big picture positioning, not day trading.

In the case of this market, price is now testing the 872 to 739 support zone which is the .618 area of the recent bullish structure. Price has rejected this zone twice which adds to its significance as a large magnitude support. Currently there is also an inside bar (previous candle) which can serve as a long trigger if the high 999 is taken out. Generally in an area like this I am looking for bullish reversal patterns. They can come in many forms with the higher low and failed low being the more obvious. IF a reversal patterns appears, it is a good place to consider swing trade or position trade longs.

The bullish perspective is in anticipation of a reversal, and not reacting when price is on the move higher. What about the bearish momentum that is still in play? IF I was day trading these markets, and was able to short, I would be looking to capitalize on lower prices, but since I am not, I can only offer an idea of how extreme price can get before momentum becomes exhausted. Current bearish momentum can take prices as low as 670 which is the lower boundary of the reversal zone measured from the 770 low. IF this market is going to fail at the lows, that is the highest probability area where this fake can occur.

In summary, your trade strategy begins with a perspective which is a function of the time horizon you choose. There is no one size fits all way to trade, it all depends on what what kind of risks you are willing to take, and how much capital you are working with. Reacting to short term movements without any consideration of where price action is occurring in terms of the bigger picture sets you up to be on the wrong side when the bigger picture reasserts itself. The current area in this market is a high probability reversal area, and one where I look for a larger magnitude reversal rather than a high risk short. I look to buy supports and sell resistances, not the other way around, and we are in a support area. It is just a matter of waiting for the right pattern to appear.

Questions and comments welcome.