A Technical Update On Ethereum For February 2023 (ETH-USD)

Produced with Avi Gilburt and Ryan Wilday

“2022 has been a challenging year for crypto investors. The past several months have had all the hallmarks of a bear market given all of the incredibly negative developments throughout the crypto space, with several major bankruptcies in exchanges going down. Most recently, and perhaps the largest (to date) was the demise of FTX.” from Jason Appel’s November Article, November Technical Update On Ethereum.

Considering ETH (ETH-USD) lost 67.50% in 2022, “challenging” is perhaps a mild characterization for the second-largest cryptocurrency. But with a new year has come new sentiment and a marked change in price action. More specifically, in the first 35 days of 2023, ETH rallied as much as 43.5% from the 2022 close, and even with the recent week’s pullback, price is up roughly 29% year-to-date as of writing this article.

In the aforementioned November article, the black count (in the chart immediately below) was presented that entailed an intermediate wave (4) bottom in place from the June 2022 low and price in the early stages of an intermediate wave (5) to take price up to $6300+. In today’s article, we will review the progress of that prospect and explore larger degree alternatives. Specifically, with regard to alternatives, we will take a look at the path presented in purple labels on the chart below from the November 2022 article.

From the November article: “And while our larger more immediate bullish thesis in BTC has certainly reduced in confidence due to the prolonged break below $24k, ETH has more closely maintained adherence to larger degree expectations laid out this spring.”

In terms of the broad strokes, this characterization of BTC has very much remained, and we ought not entirely ignore its ramifications for the overall crypto market.

Within Elliott Wave analysis, we tend to view each chart on its own, and using this as a technical discipline allows us to “tune out” a lot of factors that have a spurious relationship to price prediction. As such, for predictions regarding the price of Ethereum, our best resource is to follow a price chart of Ethereum. And at the same time, based on the history of the crypto market in general, it has proven unwise to entirely ignore what’s happening in Bitcoin as much of the market, including ETH, has yet to develop sufficient independence from Bitcoin.

Overall, this leaves us still with a cautiously optimistic bias for Ethereum.

So far, price has done nothing to deviate away from the black count from the November update. In that article, the following question and answer was posed:

“What’s needed to more confidently establish the bullish thesis?

Price needs an impulsive rally back above the late October high for starters. Five waves up, first exceeding $1,680, and then $2,030 (the August 2022 high) would be a very positive development towards bulls emphatically taking control.”

Also, from the article: “At the smaller degree, so long as price remains over $995-$1k, expectations are for upside follow through.”

To date, the initial parts of this prescription have been met: Support held $1k and price has formed a potential impulse exceeding $1,680. A more detailed analysis of the smaller time frame from the November 2022 low will follow, but to be sure, price still needs another high to complete an initial impulsive 5 up from the November low for wave circle i of 3.

The ideal action for the bullish count will be to finish up this pullback early into the coming week and possibly as soon as tonight (2/12) sustaining above $1,400 and then rallying up to $1,790-$1,900 in the coming weeks. While a move above $1,900 would appear more bullish in the short run, a direct move over the August high would be more fitting of an A-B-C up from the June low, as opposed to a 1-2, i-ii. In more simple terms, reaching $2,030-$2,550 in more direct fashion would paradoxically favor a completing 3 wave corrective rally from the June 2022 lows. This would align more closely with the purple path. Thus, the desired path here for the bullish case is a move up over the early February high without exceeding $1,900.

In either case, assuming the price holds $1,400 and rallies up past the early February high, $1,715, as stated in the title subheading, the subsequent pullback should tell the story of Ethereum in 2023.

Support for the impulse up to new all-time highs will sit in the $1,300-$1,550 region. So long as $1,300 holds, the black count to new all-time highs can be maintained cautiously as the operative count, but a sustained move below $1,200 will shift the odds in favor of the larger purple count.

The purple count, while still the alternative, is not to be ignored. The more direct path to new all-time highs in ETH presented in black (the black count) is hardly a slam dunk at this point. The purple count entails that the 2018 high was just an extended wave (3) of Primary 3 to 1.382; the subsequent pullback, Primary wave 4, held necessary fib support, bottoming above the .618 extension; then the move into November 2021, the all-time high struck between the larger 1.618-1.764 extensions, was typical of an extended 3rd. Larger degree fib support for this prospect, for a Primary 4th wave, would be $300-$375, where the larger degree 1.0 extension sits and the .382 retrace of the move from the Wave 2 low in December 2016 to the all-time high. See Weekly Chart below:

Smaller degree:

Ethereum has a potentially impulsive structure from the November 2022 lows that reached the 1.618 extension in three waves and looks to be nearing completion of a wave (iv) pullback into standard Fibonacci support, $1,446-$1,527. So long as ETH makes no sustained break below $1,400, expectations are for a low to develop in this region and a rally up to $1,800+ to commence. (See chart below)

In summary, (see daily chart below for a broad comparison of black vs. purple) the expectations are more confidently suggesting a low to form in the very near term above $1,400 and commence a rally to $1,800+. Upon arrival at $1,800+, while the black count portending a path to new all-time highs is favored, risks of a strong drop-down to $300~ increase significantly, especially if this incoming rally more directly exceeds the August 2022 highs into the $2,030-$2,550 region. In order for black to remain favored, the price will need to maintain above $1,200 on the subsequent pullback. Below $1,200 and the purple count becomes operative and de-risking an excess exposure will become imperative.

As such, adding long exposure early in the week between $1,400-$1,527 offers favorable risk-to-reward for a trade targeting $1,800+ at which point reducing exposure and playing cautiously will be the name of the game at least until price drops into wave ii of 3 support.