Will Ethereum Pull Back to Its 21-Week EMA in September?

TL;DR

Ethereum is expected to be rejected on its first approach to all-time highs and drift back to its 21-week EMA within about a month, then bounce. Daily RSI is printing lower highs while price prints higher highs, a divergence that argues for cooling through September and possibly October. Because that rejection is expected, a broad alt season likely does not materialize yet.

Transcript

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Key Insights

• Ethereum's inability to break 4K earlier was attributed to not having visited its regression band, referred to as going "home." Once it went home in April, it rallied to 4K and then on to new all-time highs, matching the stated framework.
• The 21-week EMA is a moving target, not a fixed price level. It sits near 3,300 currently, but since the pullback is expected to take a few weeks, the level could rise into the mid to high 3K range, potentially 3,400, 3,500 or even 3,700 by arrival.
• Bearish divergence on the daily chart is the core technical argument: price prints higher highs while RSI prints lower highs. That pattern implies the market needs to cool off through September and potentially into October before another leg higher.
• A high followed by a sweep of that high is a common terminal pattern before a larger retracement to the 21-week EMA. Ethereum's all-time high was described as exactly that sweep, so the retracement case is treated as the base case.
• Triple divergence, where RSI keeps falling as price keeps rising, has precedent. In 2020 it occurred in August, the final high came on September 1st, Bitcoin printed a lower high while Ethereum printed higher highs, and Ethereum then corrected to the 21-week EMA by late September.
• In 2021 Ethereum corrected to the 21-week EMA in late September, and that correction set up a final rally into the market cycle top. In 2017, Ethereum dropped slightly below the 21-week EMA starting at the very beginning of September.
• The ETH/Bitcoin valuation is also expected to cool in September and October, forming a macro higher low by roughly late October before attempting to rise again, potentially as high as 0.053.
• Alt season is judged unlikely to manifest in this window because Ethereum is expected to be rejected around the 5K range on its first approach. A more durable move to all-time highs is treated as the precondition for alt season.

Questions & Answers

Q: What is expected to happen to Ethereum's price in September?

The expectation is a down period in September after the August rally into all-time highs, with Ethereum likely returning to its 21-week EMA in about a month, then bouncing back up. There is still an off chance Ethereum prints a slightly higher high in very early September before that pullback, as happened in 2017 and 2020. Either way, the view is that the level gets rejected before the return to the 21-week EMA and a subsequent bounce.

Q: Why is Ethereum expected to be rejected on its first run at all-time highs?

The framework stated for a long time was that Ethereum goes home to its regression band, then rallies to all-time highs, but the first attempt to break all-time highs would likely get rejected by late August or potentially as late as early September. Reinforcing that view, the daily chart shows bearish divergence with higher highs in price against lower highs in RSI, implying the strength behind the move is fading and the bulk of the impulsive move is over.

Q: What does "going home" mean for Ethereum in this analysis?

Home refers to the regression band, the band Ethereum spent most of the cycle avoiding. The argument was that Ethereum's failure to break through 4K previously was because it had not yet gone to its regression band, and that visiting it was the necessary condition to ultimately sail to new all-time highs. Ethereum went home in April, then rallied up to 4K, which is how the sequence actually played out.

Q: Where is Ethereum's 21-week EMA and why does the level keep changing?

The 21-week EMA is around 3,300 at the time of the analysis, which has made some people nervous. But the bull market support band is a moving target, so by the time Ethereum actually reaches it in a few weeks, the level could be in the mid to high 3K range, possibly 3,400, 3,500, or even 3,700 depending on how long the move down takes. The number today is not the number on arrival.

Q: How does 2020 compare to Ethereum's current setup?

2020 is cited as an example of a triple divergence at the end of a move, where RSI falls while price rises. That divergence also occurred in August, and the final high came on September 1st. Overlaying Bitcoin USD on the chart shows Bitcoin put in a lower high while Ethereum was still printing higher highs. Ethereum then corrected to its 21-week EMA by late September.

Q: Why is alt season considered unlikely right now?

Alt season is expected not to manifest because a rejection is anticipated off the 5K range on this first approach. The reasoning is that for alt season to happen, Ethereum has to more durably go to all-time highs, and that durable move is not expected in late August or September. A best case might be a slightly higher high or a sweep of 5K, but even that is not treated as a guarantee.

Q: What is expected for the ETH/Bitcoin valuation?

The ETH/Bitcoin valuation has made a strong move, but it is expected to cool off a little in September and October. The projection is for a macro higher low to form on the ETH/Bitcoin valuation by roughly late October. It might rise a bit more first, then come back down by late October, and then attempt to rise again, potentially as high as 0.053.

Q: How did Bitcoin's move fit the forecast around Ethereum's all-time high?

One of the earlier calls was that Bitcoin would likely head to its bull market support band only after Ethereum put in new all-time highs. Bitcoin is nearly there, having gotten really close to its 20-week SMA and 21-week EMA, while Ethereum has put in all-time highs. Around August 20th it briefly looked bleak that Ethereum could reach an all-time high in August before a correction, but the sequence played out as described.

Summary & Key Takeaways

• The long-standing forecast was that Ethereum would not reach all-time highs until it first went "home" to its regression band, the band it spent most of the cycle avoiding. That happened in April, after which Ethereum rallied to 4K and then swept the highs in August, setting up a September pullback exactly as hoped.

• Bitcoin has moved nearly to its bull market support band, its 20-week SMA and 21-week EMA, after Ethereum put in new all-time highs. That sequencing matched the earlier call, even though around August 20th it briefly looked unlikely that Ethereum would reach an all-time high in August before correcting.

• On the daily time frame Ethereum shows higher highs in price against lower highs in RSI. The expectation is that the bulk of the impulsive move is over, with a possible one more push higher, then a September down period and a return toward the 21-week EMA before bouncing back up.