The price of ether, the token that powers the ethereum network, fell to 19-month lows just over $80 on Friday.
Ether’s dollar-denominated exchange rate (ETH/USD) slipped to $81.30 at 02:15 UTC – the lowest level since May 2, 2017 – according to CoinDesk’s Ethereum Price Index (EPI).
As of writing, ETH is trading at $83.00, representing a 17.8 percent drop on a 24-hour basis. Just three weeks ago, it was teasing a short-term bullish reversal above $200.
That key support (now resistance), however, was breached on Nov. 14, as bitcoin’s drop below the crucial support of $6,000 dashed hopes of a major bullish reversal, leading to broad-based risk aversion in the cryptomarkets.
Ether prices have dropped close to 60 percent ever since and are currently down a staggering 94 percent from the record high of $1,431 hit in January.
So, it is not surprising that bearish sentiment has reached extremes, as seen in the chart below.
ETH/USD shorts and longs on Bitfinex
The ETH/USD short positions on the cryptocurrency exchange Bitfinex rose to a record high above 340,000 soon before press time. Notably, shorts have risen by 183 percent in the last three weeks. Meanwhile, long positions have dropped to the lowest since Sept. 12, as seen in the chart above.
Such extreme positioning is usually a sign of oversold conditions and presages market bottoms. However, calling a bullish reversal on the basis of just record short positions is akin to catching a falling knife.
The outlook, therefore, remains bearish until a more credible evidence of trend reversal emerges.
As seen above, ETH had created a small doji candle last week, implying bearish exhaustion. The resulting hopes of a short-term bullish reversal, however, have been squashed with a drop to 19-months.
Moreover, ether has found acceptance below $102.20 (low of the doji candle), meaning the sell-off from $200 has resumed.
The chart also shows that 5- and 10-week simple moving averages (SMAs) are trending south.
As a result, ETH may extend the decline toward the next major support lined up at $59.00 (March 2017).
That said, the momentum may weaken somewhat, as the 14-week relative strength index (RSI) is reporting oversold conditions for the first time December 2016.
- ETH may test the crucial support at $59.00 (March 2017) in the near-term.
- With oversold readings on the weekly RSI and bearish sentiment at record highs, there is always a risk of a sudden corrective rally. The outlook, however, would remain bearish as long as ETH is trading below the recent lower high of $128.00
- A short-term bullish reversal would be confirmed if and when ETH violates the recent bearish lower high pattern with a daily close above $128.00 (Nov. 28 high).
Disclosure: The author holds no cryptocurrency assets at the time of writing.