Ethereum traders gauge fakeout risks after 40% ETH price rally

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Ethereum’s native token Ether (ETH) saw a modest pullback on July 17 after ramming into a critical technical resistance confluence.

Merge-led Ethereum price breakout

ETH’s price dropped by 1.8% to $1,328 after struggling to move above two strong resistance levels: the 50-day exponential moving average (5-day EMA; the red wave) and a descending trendline (black) serving as a price ceiling since May.

ETH/USD daily price chart. Source: TradingView

Previously, Ether rallied by over 40% from $1,000 on July 13 to over $1,400 on July 16. The jump appeared partly due to euphoria surrounding “the Merge” slated for September.

Meanwhile, a golden cross’s appearance on Ethereum’s four-hour chart also boosted Ether’s upside sentiment among technical analysts.

ETH price risks fakeout

Ether’s 40%-plus price rally since July 13 also had its price break above a critical horizontal resistance that somewhat constitutes an “ascending triangle pattern.”

Ascending triangles are typically continuation patterns. But in some cases, ascending triangles can also appear at the end of a downtrend, thus leading to a bullish reversal

Scott Melker, an independent market analyst, considered ETH’s bullish exit out of its prevailing ascending triangle pattern as a sign that it would rally further. He said

“A break above $1,284 should send prices flying, as there’s almost no resistance until the $1,700s.”

Ether has already broken above $1,284 and is in a breakout zone. Nonetheless, its close above the ascending triangle’s upper trendline has not accompanied a rise in trading volumes. That suggests a weakening upside momentum, i.e., a fakeout.

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ETH/USD daily price chart. Source: TradingView

Therefore, ETH’s price risks a reversal toward the triangle’s upper trendline near $1,284 as support. The ETH/USD pair could retain its bullish bias if it rebounds from $1,284 with convincing volumes and breaks above the resistance confluence as discussed above. 

Related: Lido DAO most ‘overbought’ since April as LDO price rallies 150% in two weeks — what’s next?

Conversely, a break below $1,284 would risk re-activating the ascending triangle setup with a bias skewed toward bears. As a result, ETH would risk crashing to $750, according to a rule of technical analysis as illustrated below.

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ETH/USD daily price chart featuring ascending triangle breakdown setup. Source: TradingView

That means a 45% decline from current price levels. 

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