Ethereum appears to be completing a classic head and shoulders reversal pattern that threatens to cap the cryptocurrency’s impressive rally in the near-term.
Currently trading at $3,636.47, ETH appears to be completing the right shoulder of this bearish formation, which could signal a significant change in market structure if confirmed with a decisive break below the neckline support.
The head and shoulders pattern shows a clear peak around $3,850 forming the head, flanked by two lower peaks that constitute the shoulders. This reversal formation typically indicates exhaustion among buyers and suggests that selling pressure is beginning to overwhelm the bulls.
The neckline of this pattern appears to be situated around the $3,600 zone, where previous support levels have converged with the ascending trend line that has been guiding ETH’s upward trajectory.
Should this bearish pattern complete with a break below the neckline, technical analysis suggests a measured move target that could see Ethereum decline by the same distance as the height of the pattern. This would potentially drag the cryptocurrency down toward the $3,200-$3,300 area, representing a significant retracement from current levels.
Weakening Bullish Structure
The chart reveals two prominent moving averages that have been supporting Ethereum’s advance over recent weeks. The steeper blue 100 SMA has provided more immediate support, while the red 200 SMA beneath represents a longer-term inflection point. The fact that price is now dipping below the 100 SMA from above suggests that the momentum that drove the previous rally may be waning.
Both moving averages are converging with the head and shoulders neckline, creating a critical support cluster that will likely determine Ethereum’s near-term direction. A breakdown below this confluence would not only confirm the reversal pattern but also indicate that the broader uptrend structure is under serious threat.
The positioning of these SMAs also suggests that any bounce from current levels may face resistance around the previous shoulder highs, making it difficult for bulls to regain control without significant buying volume.
Diminishing Positive Conviction
The stochastic oscillator has been painting a picture of weakening momentum, with the indicator showing multiple peaks at lower levels during the formation of the right shoulder. This divergence between price action and momentum is a classic warning sign that the prevailing trend may be losing steam.
Currently, the stochastic appears to be rolling over from the middle range, suggesting that selling pressure could intensify if bears can push through the key support levels. The oscillator has ample room to decline before reaching oversold conditions, indicating that any corrective move could be sustained.
The MACD histogram also supports the bearish thesis, showing diminishing positive momentum as the pattern has developed. The recent compression in the histogram suggests that bulls are struggling to maintain their dominance, setting the stage for a potential bearish crossover if selling accelerates.
For Ethereum to invalidate this bearish setup, it would need to reclaim the head high around $3,850 with conviction, accompanied by a surge in buying volume and improvement in momentum indicators.
