From low volatility to high volatility

Since June, volatility in Ethereum (ETH/USD) has been declining with a potentially bullish multi-month symmetrical triangle consolidation pattern forming over that time. Keep in mind that low volatility leads to higher volatility. 

The pattern seen on the daily chart can also be looked at as a bullish pennant trend continuation pattern on a weekly chart. Either way, since this classic consolidation pattern follows a greater than 6900% rally in 6 months, starting from the December 2016 low, the odds favor an eventual resolution to the upside. At the same time, we always must be prepared for the opposite, a breakdown in this case. 

Ethereum is getting closer to the apex of the triangle and we can, therefore, anticipate that a breakout should occur within 2-3 weeks, if the triangle retains its integrity. After that, the validity of the pattern becomes in doubt if a breakout has not yet occurred. Ideally, a breakout would occur this week or next, given where price is now relative to the apex.

Short-term outlook

Nevertheless, the above analysis is also important for the short-term outlook since ETH is inside a narrowing consolidation range and therefore follow-through is likely to continue to be diminished until a breakout of the larger pattern and therefore dominant pattern, occurs.

Since the triangle is an obvious pattern to anyone with basic technical analysis knowledge, we also need to anticipate the possibility of a sharp drop to the downside initially that can shake out weak holders before an upside breakout kicks in, if it is to do so. There’s no way to know if this type of price action will happen but we don’t want to be too surprised if it does. 

Breakout potential

If ETH does breakdown then watch for potential entry points to take advantage of a subsequent potential rally back into the pattern in preparation of an upside breakout. Support of the pattern is currently identified with a prior swing low around 273.50. At that point, ETH would be below the uptrend line.