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The crypto markets have been consolidating and experiencing a small correction lately. Though we expect the correction to dig a little deeper, over the long haul, this should be a relatively shallow correction.
Source: TradingView
Ethereum has been holding above a 20-month support trend line that has been in place since March 2020. I suspect this trend line will get tested in the coming days. Continuing to hold above this trend line implies the uptrend remains healthy.
As we’ll see in a moment, using Elliott Wave Theory as our guide, it is possible we may see a false break below this line. A break below the line is not required under Elliott Wave Theory.
Ethereum’s current Elliott Wave
The favored Elliott Wave count is that Ethereum just finished a smaller degree impulse wave on November 10, 2021, and has since been correcting lower in a smaller degree wave (ii).
Source: TradingView
Within Elliott Wave Theory, the market moves five waves in the direction of the larger trend. Therefore, ETH may be in the early stages of a strong third wave higher, with waves (iv) and (v) still to come off in the future.
However, it may be premature for this third wave to take off right now. Due to the nature of the completed wave (i) impulse, Ethereum could fall below $3,900, which is considered normal based on the wave count above.
Source: TradingView
It appears that an Elliott wave-ending diagonal pattern began on October 27, 2021, at $3,900. Ending diagonals are a terminal wave at the end of a larger trend. This ending diagonal from October 27 to November 10, 2021, signals an end to the larger trend that began on September 21, 2021.
A common side effect of ending diagonals is that they tend to completely retrace after the diagonal is completed. As a result, Ethereum may see a correction that unfolds to levels below $3,900.
Source: TradingView
Using a log scale on the price chart, the $3,900 level is also guarded by the Fibonacci 38% retracement level for the entire impulse wave that began September 21, 2021. The log scale allows us to compare corrections and retracements of large market moves, especially in crypto.
If ETH prices fall below $3,900, the next level of support is the 20-month trend line sitting near $3,600, depending on how long the correction takes to unfold.
The last line of defense for Ethereum would be the 61-percent retracement level near $3,343.
Bottom line look for Ethereum to correct lower below $3,900 in the next few days. However, a normal and healthy correction will likely hold above $3,343 to finish off wave (ii). Once wave (ii) is completed, wave (iii) would begin and rally to new all-time highs.
Jeremy Wagner, CEWA-M, is a chart reading expert with a focus on Elliott Wave Theory. Jeremy earned the certified Elliott Wave analyst with high honors and was awarded the rare master’s designation (CEWA-M). You will find him teaching Elliott Wave and Fibonacci to traders through See The Waves.
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Featured Image: Shutterstock/Mike H
