Ethereum's native asset Ether (ETH) may rebound by nearly 60% in the coming sessions as the bulls pin hopes on a classic bullish continuation pattern.
Prices may rise to or above $6,500 from their current levels near $4,100 after completing a "cup and handle" formation, hinted Matthew Hyland, an independent on-chain analyst, in a tweet published Monday.
A perfect Cup and Handle retest
Hyland's chart shows Ether returning to the old point of resistance of its previous Cup and Handle pattern (the yellow horizontal line in the chart below), in a corrective move that started after the cryptocurrency reached its record high of $4,867 on Nov. 10 (data from Coinbase).
Ether underwent a soft rebound after testing the Cup and Handle resistance as its interim support, raising possibilities of a extended move upside ahead.
In detail, the first breakout attempts out of bullish technical setups typically require additional confirmation.
Notably, these early gains tend to trap two groups of buyers: longs that enter deep in the pattern hoping for a breakout (which fails), and longs that chase the breakout but see their small profit evaporate following sudden bearish reversals, which prompt them to defend their positions.
But tables turn when the decline stalls midway, which either leads to sideways action or a full-fledged rebound. As a result, short sellers lose confidence, while longs that survived the previous pullback gain conviction in the prevailing bullish technical setup.
A positive rebound sets a bullish feedback loop in motion, thus prompting the price to prepare for the final leg in the pattern — a strong uptrend. As Hyland hinted, Ether's retesting the "huge Cup and Handle pattern" resistance as support appeared perfect — a potential cue for a sharp rebound.
Why $6.5K?
The buy point in a Cup and Handle pattern emerges when the price breaks above its resistance level with an increase in trading volumes.
Traders typically estimate their profit target by measuring the distance from the Cup's right top to its bottom and then adding the number to the buy point.
The Cup's maximum depth is nearly $2,500, while its breakout point is around $4,100. As a result, the pattern's breakout target comes to be at or above $6,500. A Harvard study shows that Cup and Handles have a 65% and 68% success rate for forex and stock markets, respectively.
Conversely, breaking below the pattern's resistance level — coinciding with multi-month rising trendline support — risks invalidating the bullish setup. That may lead the Ether price to the next support line near $3,090.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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