If you’ve been trading any amount of time, you know that the crowd piles in at the top and bails at the bottom. Sentiment drives markets and that is no different with the crypto currency market. What is not valued now will become the next winner. And, the coin the masses are buying now will one day fall in a steep correction.
The principle behind this is simple. New money is needed to drive a rally. Once everyone and their mother have bought an asset, you reach a point where there is no more buyers. So the market must come down to find a bid and at some point panic drives it harder.
I have learned to measure sentiment with the Elliott Wave principle. It’s a simple theory that suggests the market moves in 3 motive or advancing waves, with 2 corrections in between. This creates a five wave fractal every market follows in some way.
Avi Gilburt the founder of Elliott Wave Trader has developed a system of using Fibonacci retraces and extensions to try to discern where an asset lies in this pattern. Called Fibonacci Pinball, it also provides targets and stops for every trade we make.
Currently we are tracking the pattern in both Ethererum, and Ethereum Classic the coin resulting from the post Dao Ethereum hard fork. If you are familiar with these coins, which do you think will do better over the next 6-9 months?
If viewed under the guide of sentiment, which asset is unloved? Which one do you and the crowd expect to do better on a fundamental basis? I expect most people to say Ethereum. Ethereum is being explored by enterprises globally, is the driving blockchain behind hundreds of Initial Coin Offerings (ICOs), and the brainchild of celebrity blockchain nerd Vitalik Buterin. Rumor suggests Vitalik even visited Vladimir Putin to discus blockchain in Russia.
What is happening in Ethereum Classic fundamentally? I have no idea. What if I was to suggest that I believe Ether Classic, or Cheap E as one of my subscribers calls it, is going to outperform Ether, probably over the next six months. Would you believe me?
See Figure 1, our long term Elliott Wave count of Ethereum. As you see we rose from 41 cents to $21.50 in wave one, then an almost six month wave 2, that felt like a bear market, brought the price down to $5.92. It then embarked on the massive third wave we are still in now. Our targets for this wave are $3500 roughly. But first we have two major fib targets to hit: The 1.382 extension off that low at $1100-$1400 before we expect the final iv of 3 to take it to $310 or so. This will bring in the setup for our final target of roughly $3500 for this third wave.
For sure, I am bullish on Ethereum.
See fig. 1, Ethereum long term count.
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Ether classic has actually moved in more accelerated fashion through its primary wave 3. While its price is lower, it’s wave 3 was more aggressive and extended pushing beyond key fibonacci extensions. Would you have expected that in the fundamentals? We believe it probable based on current price action that it has bottomed above it’s wave iv target of $7. And, if so, we are looking for a final push in the fifth wave to the upper $60’s to $70’s. The lowest target I see is $49. As subscribers can attest, I have looked for this final target for some time, since May. We may now have the setup to make this happen.
Figure 2. Ethereum Classic Primary Count
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So, when we speak of these two coins, one much loved, the other forgotten, we can assess sentiment wise, that Ethereum Classic will do better. And mathematically, using our Fibonacci Pinball system, we can actually put a target on it.
Let’s take a look at the math of each trade in terms of risk and reward or R:R. The low end of our minor iv in Ether should go no lower than $100, and we are looking up toward $1100 once confirmed it is complete. It is $290 at the time of writing. This is risking 65% for 3.8X.
For Ether Classic, now at $12, we can see a drop to $7 as healthy and are targeting $70. This trade has a 42% risk for a nearly 5.4X gain. Which would you own. I own both but have an oversized my portfolio in Ether classic.
Finally I leave you with the chart of the ETCETH pair. We have recently struck an all time low. Again, which is unloved? However technically we are starting to form massive divergence both in MACD and RSI on the daily chart. A simple trendline that governs the downward slope could easily come under pressure.
Figure 3. ETCETH pair chart
Given what you have learned today, what do you think? Will you change your view on Ethereum vs. Ethereum Classic? I am not suggesting at all that Ethereum Classic fundamentally? Quite the contrary. I see no activity on the Ethereum Classic platform, but happy to be proven wrong. I just don't hear about it. But I am still more bullish on it than Ether short term and making that bet. Will you take a bet despite your fundamental view?
Ryan Wilday (@wildtrader) can be found on Twitter (@rwilday) and provides ongoing analysis and trade setups for crypto currency as part of the team on Elliottwavetrader.net.
I like this. It is corroborative of what the Clif High reports are saying about another upward move soon. I'll keep an eye on this one. Thanks for sharing.