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The possibility of a war between the US and North Korea is threatening to derail the risk-on trade across asset classes. As a result, traders have been piling on safe havens like gold. Bitcoin and the other cryptocurrencies were also benefitting from this until China decided to crackdown on the “initial coin offerings” (ICOs).
So, will cryptocurrencies buckle after the Chinese clampdown or will the fear of a war support the currencies in the short-term? Let’s study the charts to forecast the next move on the top five digital currencies.
In our analysis on Aug. 29, we had predicted a rally to about $5,000 levels and had recommended to trail stop losses higher to lock in the gains, as we expected strong resistance there. Hopefully, our readers were not surprised when price corrected from the psychological barrier of $5,000. So, what should be the next course of action?
Bitcoin continues to trade within the ascending channel. The correction from the highs of $4,980 broke below the trendline support intraday. However, the closing was well above it. Therefore, the uptrend in Bitcoin is intact. We shall change our bullish view only when the cryptocurrency breaks below the trendline and the 20-day exponential moving average (EMA).
At the current levels, we expect a retest of the $5,000 levels. However, we are not sure whether the digital currency will breakout in a hurry. We, therefore, expect a range bound action for a few days. Aggressive traders can go long at the current levels with a stop loss below $4,400 and a target of $4,980. However, please keep the allocation size small, as we are seeing signs of a negative divergence on the RSI.
Our analysis of Ethereum also played out according to our expectations. $381 acted as a strong resistance and price retreated from there. Comparatively, Ethereum is weaker than Bitcoin because it broke below the 20-day EMA and fell to the 50-day simple moving average (SMA).
However, it is also attempting to resume its rally following the sharp correction. As the price has broken out of the 20-day EMA, traders can buy at the current levels and keep a close stop loss at $318. A retest of $380 levels is likely. However, traders should keep a close watch at $354 levels, which is the 61.8 percent Fibonacci retracement level of the fall from $396.88 to $285. If price struggles to breakout at this level, consider closing the position and waiting for another setup to form. Please try to keep the allocation size small.
Our bullish view will be invalidated if price breaks and closes below the ascending channel.
Bitcoin Cash is presently trading in a descending channel.
Both the moving averages have flattened out, which shows the possibility of range bound trading. If the digital currency breaks out of the channel, it can rally towards $736 levels. However, we don’t find any reliable buy setups. Therefore, we are not recommending a trade on it.
Ripple never rallied the way we had expected it to. It has been volatile and direction less since breaking out of the descending triangle pattern. Nevertheless, it has not become completely bearish either, as it has not fallen below the 50-day SMA.
We don’t see any reliable buy setups, therefore we are not recommending any trade on it for swing traders. However, the digital currency can rally to $0.3000 levels if it breaks out and closes above the downtrend line. Traders who attempt this trade should keep a stop loss below $0.1900. This is a risky trade, therefore, please think about keeping the allocation size only 25 percent of normal.
Litecoin surpassed our target of $70 by a huge margin. $100 proved to be a strong barrier and price corrected to about 61.8 percent Fibonacci retracement levels of the rise from $41.65 to $98.28.
Since then, the price has been in a pullback. However, we expect to see some kind of a consolidation for a few days before the digital currency again attempts to breakout of the $100 levels. Litecoin is likely to be volatile for the next few days. Therefore, we are not recommending a trade on it.
The current situation is filled with uncertainty. Therefore, traders should reduce their allocation size considerably and adhere to their stop losses, as the digital currencies are likely to remain volatile for the next few days.