The U.S. stock markets, gold, crude oil, and crypto markets have all corrected in the past week, which shows that traders booked profits in most asset classes. The total crypto market capitalization corrected from a high of above $394 billion to a low of about $313 billion, which is roughly a 20% correction.
This decline also led to a sharp fall in Bitcoin (BTC) futures open interest, which was down by $653 million on Sep. 3, suggesting squaring up of positions by a few professional short-term traders.
However, even after the fall, the trend in several major cryptocurrencies has not turned bearish because they are still trading above their respective 200-day simple moving average. Professional traders watch this moving average closely and it is generally considered that if the price stays above it, the trend remains positive.
Crypto market data daily view. Source: Coin360
Usually, every sharp fall is followed by a rebound because aggressive traders use the dip to buy. However, the bears who could not sell in the first fall wait to sell on relief rallies. If the next drop breaks below the recent lows, then it will suggest the start of a deeper correction.
Conversely, if the bulls can defend the recent lows and sustain the rebound, it will suggest that the correction might be over. The cryptocurrencies selected in this analysis are all trading above their 200-day SMAs and are attempting a rebound off their recent lows.
As the correction has been sharp, traders should watch the price action carefully before initiating any long positions.
Bitcoin has failed to rebound sharply from the $10,000 level in the past three days, which suggests that the bears are selling on every relief rally. This suggests that the sentiment has turned from buy on dips to sell on rallies.
BTC/USD daily chart. Source: TradingView
If the bulls fail to push the price above $10,400 and sustain it, the bears will make one more attempt to resume the correction. If the BTC/USD pair sustains below $10,000, a drop to the 200-day SMA ($9,078) is likely.
This is an important support to watch out for because if the price breaks and sustains below this level, the selling could intensify further. The next support on the downside is $8,000 and then $7,000.
However, if the pair rebounds off the current levels and rises above $10,625, a move to $11,000 is likely. This is an important level to watch out on the upside because if the bulls can push the price above this it will suggest that the downtrend has ended.
BTC/USD 4-hour chart. Source: TradingView
The 4-hour chart shows that the bulls have not allowed the price to sustain below the $10,000 level, which suggests that they are accumulating at lower levels.
If the bears do not break the $10,000 support convincingly within the next few days, the possibility of a sharp rebound increases because the aggressive bulls will buy expecting that a bottom has been made.
A breakout or breakdown of the $9,835–$10,625 range is likely to start the next trending move. Until then, trading inside the range is likely to remain volatile.
Ether (ETH) plunged and closed (UTC time) below the strong support of $366 on Sep. 5, which is a negative sign. The altcoin is currently attempting to rebound off $308.392, which is just above the 100- day SMA ($304).
ETH/USD daily chart. Source: TradingView
The bears will try to stall the relief rally at $377.053, which is the 38.2% Fibonacci retracement level of the most recent leg of the fall from the 52-week highs.
If the ETH/USD pair turns down from this level and breaks below $308.392, a drop to $288 is possible. A break below this support will be a huge negative.
Conversely, if the bulls can sustain the price above $366 or if they can arrest the next dip above $308.392, it will increase the possibility that the bottom has been made. That is likely to attract further buying, which could resume the up-move.
The upsloping moving averages suggest that this is only a correction and the medium-term trend still favors the bulls.
ETH/USD 4-hour chart. Source: TradingView
The 4-hour chart shows that the decline has been sharp and the bears have sold aggressively on a pullback to the downtrend line.
However, the bulls are currently attempting to push the price above the downtrend line. If they succeed, it will suggest that the short-term selling pressure has reduced and that could result in a rebound to $366.
If the bulls can push and sustain the price above the $366–$377.053 resistance zone, it will suggest that the correction might be over.
Chainlink (LINK) plunged to an intraday low of $9.10 on Sep. 5, which is just above the critical support at $8.90 and the 100-day SMA ($8.69). The sharp rebound off the support shows that the bulls have aggressively purchased at lower levels.
LINK/USD daily chart. Source: TradingView
Currently, the bulls are attempting to push the price above the 50-day SMA ($12.29). Above this level, the bears could again pose a stiff challenge at $12.89. If the LINK/USD pair turns down from either level, the bears will try to sink the price below the $8.90 support.
Conversely, if the bulls can push the price above $12.89, a move to the downtrend line is possible. A break above this level will suggest that the bulls are back in command and a rally to $17.7777 is likely.
LINK/USD 4-hour chart. Source: TradingView
The long tail on the 4-hour candlestick that dropped to $9.10 shows that the bulls aggressively purchased at lower levels.
The bulls again stepped in to buy the next dip at $9.7155, which is a positive sign as it shows that traders are not waiting for lower levels to buy.
However, the bears are unlikely to give up without a fight as they will try to stall the recovery at $12.89. If the pair turns down from this level, the price might remain range-bound between $8.90–$12.89 for a few days before making a decisive breakout.
If the bulls can sustain the price above $12.89, it will be the first indication that the correction is likely over.
The bears have not been able to sink and sustain NEO below the breakout level of $16.72441, which is a positive sign. This suggests that the bulls are not dumping their positions in fear.
NEO/USD daily chart. Source: TradingView
The 50-day SMA ($14.98) and the 100-day SMA ($12.89) are sloping up, which suggests that the medium-term trend remains bullish.
However, the bears are unlikely to give up without a fight as they will mount a stiff resistance at $18.75334 and again at $19.53099, which are 38.2% and 50% Fibonacci retracement levels of the most recent correction from the 52-week highs.
If the bulls again buy the next dip to the $16.72441 level aggressively, it will suggest that a short-term bottom might be in place.
Contrary to this assumption, if the bears sink and sustain the NEO/USD pair below $16.72441, the correction could extend to the 50-day SMA and then to the 100-day SMA.
NEO/USD 4-hour chart. Source: TradingView
The 4-hour chart shows that bears have been aggressively selling on any pullback to the downtrend line. If the pair turns down from this line once again, the bears will try to resume the correction by breaking below the $16.23586 support.
Conversely, if the bulls can push the price above the downtrend line, it will be the first sign of strength. This could attract buying from the aggressive bulls who will then attempt to resume the up-move.
NEM (XEM) is attempting to rebound off $0.1023475, which is just below the 50% Fibonacci retracement level of the entire leg of the up-move that started in end-June. This suggests that the bulls are buying on dips, indicating positive sentiment.
XEM/USD daily chart. Source: TradingView
The rebound is likely to face resistance at $0.1413531, which is the intraday high of Sep. 5 but if the bulls can scale the price above this level, a retest of the recent 52-week high at $0.1690655 is possible.
Contrary to this assumption, if the XEM/USD pair turns down and breaks below $0.10, the correction could extend to the 61.8% Fibonacci retracement level of $0.0890120. A break below this support will be a huge negative.
XEM/USD 4-hour chart. Source: TradingView
The 4-hour chart shows that the bulls did not allow the price to sustain below $0.105 levels but the relief rally is facing resistance at the 38.2% Fibonacci retracement of the most recent fall.
If the pair turns down from this resistance, the bears will once again try to sink and sustain the price below $0.105. If they succeed, the decline can extend to $0.0890120.
Conversely, if the bulls again buy the next dip aggressively, it will indicate strong demand at lower levels. If they can propel the price above the downtrend line, it will increase the possibility that the bottom might be in place.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, you should conduct your own research when making a decision.