by Vadim Pokhlebkin
Updated: January 04, 2018
The rally sports the signature of an Elliott 3rd wave
In our nearly 40 years in the business, we've applied Elliott waves to hundreds of different markets -- some mainstream, some exotic. And even to non-markets. Consider:
In 2007, we looked at Russia's RTS stock index -- and saw a very bearish Elliott wave picture. (Russian stocks fell ~80% in 2007-2009.)
In 2008, commodities looked top-heavy, especially crude oil. (Oil fell from $147 to $32 a barrel over a few months.)
In Socionomic Causality in Politics, Bob Prechter's new book, our historical study of nuclear war fears suggests that even this collective expression of human psychology follows the familiar pattern.
So, when we first studied price charts of cryptocurrencies, we weren't surprised to discover that they too reflected a recognizable pattern.
For now, Bitcoin maintains its 900-pound gorilla status. Yet the crypto world now includes over 1000 currencies, each trying to become the next big thing. Of all of them, Ethereum has gotten the closest. Here's how Wikipedia describes it:
Ethereum is an open-source, public, blockchain-based distributed computing platform featuring smart contract (scripting) functionality. It provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine, which can execute scripts using an international network of public nodes. Ethereum also provides a cryptocurrency token called "ether", which can be transferred between accounts and used to compensate participant nodes for computations performed.
As complicated as it is to explain a cryptocurrency in simple language, the fact remains that they are getting so ubiquitous that the CME and CBOE have recently launched Bitcoin futures. The word is, Ethereum derivatives won't be far behind. To satisfy this growing demand, we launched our own Cryptocurrency Pro Service and recently showed you that you can, in fact, apply Elliott waves to Bitcoin.
So, what about forecasting Ethereum with Elliott waves?
On Thursday, January 4, Ethereum broke the $1000 ceiling, for the first time ever. That's a roughly 25% rally in less than a week. Three days prior, with Ethereum trading at $754.36, our Cryptocurrency Pro Service team posted this bullish Ethereum forecast (full Elliott wave labeling reserved for subscribers):
Posted On:January 01, 2018 06:28 PM
Outlook: ETH has worked its way higher off the wave ii low. Trade above the wave ((i)) high at 774 basis GDAX data would strongly favor an impulsive advance in wave iii is underway.
And here's where Ethereum is trading today (full Elliott wave labeling reserved for Cryptocurrency Pro Service subscribers):
The rally past $1000 fits best as a third wave, the strongest and fastest part of the basic Elliott wave impulse, which certainly helps explain the speed of this week's rally.
To understand why Elliott analysis can forecast even these new and exotic financial instruments, you must know what Elliott waves are. At its simplest, each price move on a chart reflects the shifting collective psychology of market participants. These shifts aren't random, but patterned: 5 waves in the direction of the larger trend and 3 waves against it. Once you establish where in this pattern a market is, you can forecast where prices should move next. That's it, whether you're looking at the Dow, crude oil -- or Ethereum.
You might think that in extremely emotional markets -- which cryptos have been lately -- Elliott waves may lose effectiveness. Yet as a rule, the more emotional the market is, the clearer the wave patterns become. With Ripple and Litecoin nibbling at the heels of the current two market leaders, we don't see these emotions subsiding any time soon.
EWI's FX analysts now provide cryptocurrency coverage. Investors who follow and trade Bitcoin, Ethereum and Litecoin can see what is most likely to happen next -- on multiple degrees and in both directions.
To our best knowledge, The Elliott Wave Theorist was the first financial publication in the world to discuss Bitcoin. Bitcoin began at a price of one cent in 2009. When it hit 6 cents in September 2010, amidst obscurity, skepticism and disinterest, our Theorist explained the digital currency to subscribers and said it had the potential to become the world's currency. As everyone now knows, Bitcoin recently traded at $20,000 and then plummeted almost 50% in a matter of days.
Most traders get run over by big market swings. High volatility markets like Bitcoin present plenty of risks—and plenty of opportunities. EWI’s analysts keep their vigilant eyes on the waves, on the lookout for moves most people won’t see coming. Will they call every move? Of course not, no forecasting service does. But for traders excited to enter these waters, there is no better perspective available to make sense of the cryptocurrency market.