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The charts are flashing mixed signals. While price action suggests a potential reversal, momentum indicators remain firmly bearish. Is this the start of something bigger—or just a trap?
- BTC/USD bounced twice from $99,060 support.
- Price action is forming a falling wedge pattern.
- ETH/USD printed a piercing pattern near the 200DMA.
- Momentum indicators still favour downside setups.
Summary
There’s been a lot of negativity in the crypto space recently, both in price action and headlines. ‘Uptober’, as it’s become known, didn’t go to script this time, with Bitcoin and Ethereum plunging during a period in which they’ve historically outperformed. November hasn’t been kind to bulls either, with fresh lows seen for both.
However, while it needs to be treated with caution, given it may be a bull trap, recent signals suggest we may have seen a near-term low in BTC/USD and ETH/USD, pointing to a possible extension of the countertrend reversal currently underway.
BTC/USD Bounces from Familiar Level
Source: TradingView
While BTC/USD has seen some ugly price action recently, it’s notable that the price has now bounced twice from the intersection of horizontal and downtrend support at $99,060—the same level where a massive bullish pin candle printed back on June 23, kickstarting the run towards the record highs.
So, this level has form for bulls. When you zoom out the price action, it’s hard to ignore that the price is now coiling in something that resembles a falling wedge, a bullish continuation pattern that suggests a topside break of downtrend resistance running from the record highs could eventually see a retest of that level.
Clearly, there’s a long way to go before we can contemplate that, but it will be interesting to see what happens should the price manage to reclaim the key 200-day moving average it’s currently testing from below. Wednesday’s bullish reversal stalled at the level, so it’s the line of scrimmage where bulls and bears may battle today.
A topside break would allow for longs to be established with a stop below, targeting higher levels. The preference would be to see a break, retest and bounce from the 200DMA before entry, which I’ll explain in a moment. $107,500 and wedge resistance found just beneath $111,000 today, along with the 50-day moving average, provide possible targets. Alternatively, if the price remains capped by the 200DMA, shorts could be considered beneath the level with a stop above, targeting $99,060 initially.
As things stand, the message from momentum indicators is entirely bearish, with RSI (14) and MACD trending lower without being in oversold territory, pointing to strengthening downside pressure. That favours short setups over longs, making risk management especially important for bulls.
ETH/USD Delivers Bullish Reversal Signal
Source: TradingView
Like BTC/USD, the 200DMA is another relevant level for ETH/USD traders to monitor in the near term, coinciding with where the price bottomed on Tuesday. While Wednesday’s candle failed to take out the low struck a day earlier, potentially lessening the signal in some traders’ eyes, the long bullish bar that printed is known as a piercing pattern, often seen at bullish reversal points.
While the gap didn’t take the price to fresh lows, the long bottom wick on Tuesday’s candle from the 200DMA arguably strengthens the signal, indicating that buyers were already lurking at lower levels.
There are a few options for traders to consider should the bullish signal prove accurate. The first is to wait for a potential pullback towards the 200DMA, allowing for longs to be set above with a stop below, targeting $3,500 resistance, former downtrend support located around $3,570 today, or $3,700.
The abovementioned targets are also relevant to those traders willing to act on the bullish signal now, although anyone entering around these levels needs to keep risk management at the forefront of their thinking given a lack of known nearby levels that could offer protection. As such, it screens as a less appealing setup.
If the price reclaims $3,500, it could be used to build fresh two-way setups, depending on how it interacts with the level, allowing for a stop to be placed on the opposite side for entry. If it breaks higher, longs could target the levels mentioned above, with $4,100 resistance and 50-day moving average other options should the bullish extension find another gear. Alternatively, if the price stalls at $3,500, it would allow for shorts to be established below with a stop above, targeting the November 4 low.
Even with the bullish price signal from Wednesday, momentum indicators continue to deliver a firmly bearish message. RSI (14) continues to trend lower beneath 50 but is not yet in oversold territory, pointing to strengthening downside pressure. MACD confirms this, having staged a bearish crossover in early October before pushing into negative territory. The message favours bearish setups, so traders should keep an open mind about playing it from the short side should Wednesday’s price action prove to be a bull trap. Let the price action guide your next move.