Large-cap altcoins are attempting to rally higher but first bulls need to flip $24,000 to support.
When the price of an asset hits a new all-time high, momentum traders plow in as they sense an opportunity to ride the trade higher. The same was seen after Bitcoin (BTC) price broke above the $20,000 mark on Dec. 16. By Dec. 19, the price had hit an intraday high at $24,197.46, a 21% rally in four days.
These sharp moves in Bitcoin price attract traders who use derivatives to try and amplify their gains or hedge their existing positions by buying downside protection. This resulted in the open interest on Bitcoin options hitting a new all-time high at $6.5 billion earlier this week.
While professional traders use complicated options strategies to establish their positions, the retail traders generally buy naked options with a dream of earning a windfall on the options contract. This can be seen from the high open interest on the $36,000 strike price and the $52,000 call option.
For every option contract, there is a seller and a buyer and generally, professional traders prefer to sell the option contracts and pocket the premium when the expiry is worthless. Therefore, retail traders should make informed decisions before buying naked options contracts.
The bullish momentum on Bitcoin has pulled select altcoins higher. Let’s look at the charts of top-5 cryptocurrencies that could offer trading opportunities in the coming week.
BTC/USD
Bitcoin picked up momentum after the price broke above the $20,000 overhead resistance but the quick rise of the past few days has pushed the relative strength index (RSI) deep into the overbought territory. This suggests the possibility of a consolidation or a correction in the next few days.
Usually, after the price breaks above a critical level such as an all-time high, it turns down and retests the breakout level. In this case, the BTC/USD pair may turn down from the $25,000 to $26,000 resistance zone and retest the breakout level at $20,000.
If the price rebounds off this support aggressively, the bulls will again try to resume the uptrend. If they succeed, it will suggest that $20,000 is the new floor for the pair.
Contrary to this assumption, if the bears sink the price below the 20-day exponential moving average ($20,356) and the $19,500 support, the pair may drop to the 50-day simple moving average at $17,960.
Although the trend is up, the 4-hour chart shows that the bulls are finding it difficult to sustain the price above $23,795.29. This suggests that after the recent sharp up-move, the bears are attempting to stall the rally. The negative divergence on the RSI is a signal that the momentum may be weakening.
If the price dips below the 20-EMA, the pair could drop to the $22,272.63 support. This is an important short-term level to watch out for because if it cracks, the short-term traders may book profits. That could quickly pull the price down to the 50-SMA and then to $20,000.
This view will be invalidated if the price surges and sustains above $24,000. Such a move will suggest that momentum traders are in control.
ETH/USD
Ether (ETH) broke out of the ascending triangle pattern on Dec. 16 and the price rallied to $676.325 on Dec. 17 but the bulls could not sustain the higher levels as seen from the long wick on the daily candlestick.
However, a positive is that the bulls have not allowed the price to drop below the immediate support at $622.807. The price is currently stuck between $622.807 and $676.325.
If the bulls can propel the price above $676.325, it could start the next leg of the uptrend that could reach the pattern target of $763.614. The upsloping moving averages suggest that the bulls have the upper hand.
Conversely, if the bears sink the price below $622.807, the ETH/USD pair could drop to the 20-day EMA ($599). If the price rebounds off this support with strength, the bulls will try to resume the uptrend.
The trend will turn in favor of the bears if the price drops below the trendline of the triangle.
The 4-hour chart shows a symmetrical triangle formation, which generally acts as a continuation pattern. If the bulls can push the price above the triangle, the pair may resume the uptrend.
On the contrary, if the price dips below the triangle, a drop to the $622.807 support is possible. If the bears sink the price below the 50-SMA, the pair may lose momentum and drop to the trendline of the triangle.