Ethereum leads crypto upsurge as stocks slump

Crypto currencies have been in demand again of late, with prices making higher highs and higher lows. It is not clear what exactly is behind the rally but with the stock markets falling in the U.S., they may have found some safe-haven flows. Today’s sell-off on Wall Street has been vicious, but the warning signs were there. Above all, it was the market’s response – or lack thereof – to so many solid company earnings which made us cautious on US equities. Despite the release of mostly better-than-expected results, the major indices could not push higher. When the markets don’t respond to news in the way one would normally expect them to, then it may be a sign of change.

This may well have been indicative of a market stuck in distribution phase: smart money selling stocks to street money. Today’s sell-off was exacerbated because of technical reasons, as the break of the 200-day average on the S&P 500 and Dow Jones probably triggered a cluster of stop sell orders. But it remains to be seen whether the indices will be able to bounce back, or this time the correction will be more severe. If stocks remain under pressure then cryptocurrencies could extend their gains further.

Among the major digital currencies, Ethereum continues to show relative strength. We last looked at ETH/USD back in April 9 in THIS article. Then, Ethereum was trading near that $400 support level where we highlighted the possibility of a rally. Here, several technical factors came together, including the long-term bullish trend line and previous support and resistance level. As it turned out, we were correct on this occasion over the direction of the trend. The crypto has rallied sharply away from that level and it has almost doubled in price. Today in another bullish development, it took out short-term resistance at $700. This level is now going to be the key support level going forward.

For as long as price remains above it, the path of least resistance would be to the upside. If and when it goes back below this level then this may be a bearish development, particularly if the last low prior to the breakout at $627 also gives way. Meanwhile, the next area of resistance, which could also be a bullish objective, is between $800 and $835. This range was formerly supported and so could turn into resistance. Above here, the 61.8% Fibonacci retracement level at $891 is the next objective bullish target.

About the Author

Fawad Razaqzada is market analyst at FOREX.com and City Index brands of Gain Capital.