Bitcoin and Ethereum technical outlook: upside capped

Bitcoin medium-term technical outlook – bearish

The recent pause in Bitcoin’s slide around key support raises the perception that it could be building a base. However, it may be too soon to conclude that the worst is over. Indeed, the overall downward bias remains intact, and any rebound could be short-lived.

For the past few months, BTC/USD has been holding around quite-strong support at 17589 (the June low). The sideways price action in spot is reflected in the stalling of momentum on the daily and weekly charts.

BTC/USD weekly chart

On the weeklies, there is evidence of positive momentum divergence (stalling in price associated with rising momentum). However, it may be premature to read too much into this, for two reasons.

Firstly, in a sideways / directionless market, momentum may not be a reliable leading indicator. It is a description of the trend and its strength (or the lack thereof). Secondly, in the past month or so, realized volatility has fallen.

Quite a few bars on the daily candlestick charts are long-legged with small bodies, implying indecision. Wide-ranging bars depict conviction of either the bulls or bears, depending on the direction of the market. Hence, on their own, such momentum signals can be inconclusive.

BTC/USD daily chart

Big, wide-ranging candles on the daily chart coupled with a resistance break can be reliable indicators of a change in trend. In this regard, there is immediate resistance on the 89-day moving average.

More often than not, pullbacks/rebounds have come about from the average. Hence, a decisive break above it could be a sign of strength in the near term, potentially opening way towards the 200-day moving average (now at about 25950). That could be tough resistance to crack.

Ethereum medium-term technical outlook – bearish

While BTC/USD could be forming a double bottom at the June and September lows, ETH/USD is in the process of staging a higher low this month, relative to its June bottom. A higher secondary low (relative to the previous one) in ETH/USD versus a potential double bottom in BTC/USD is a reflection of the relative strength of the former cryptocurrency.

ETH/USD daily chart

However, ETH/USD remains entrenched in a downtrend, guided by a declining channel from February 2022. For now, 1193-1219 seems to offer decent support, with stronger support at the June low of 879. Unless ETH/USD is able to clear immediate resistance at the end-August low of 1421, the path of least resistance in the short term remains sideways to down. Ahead of 1193-1219, there is a tougher hurdle on the 200-day moving average (now at 1800).

Any break below 1193-1219 could pave way towards the June low, near 78.6% retracement of the 2020-2021 rise. Subsequent support is at the September 2020 high of 490.

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