ETH's Nested Flags: Bull Flag within a Bear Flag

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Primary Chart: Weekly Candle Chart of ETH/USD with Competing Flag Scenarios

Longer-Term Analysis

has been largely in a trading range since making its low in June 2022. Yes, some of the moves within that range have been quite substantial. The move off the June 2022 low to the early August 2022 high was about +130.59% higher. The next leg higher from the early November 2022 low to the April 2023 high was about a +99% move. In between those moves was a substantial -47.29% downdraft. (Downdrafts may have quite a smaller percentage because the starting point begins much higher than the starting point for an up move.)

But big volatility, huge moves, don't guarantee a strong trend either way. A stock can chop up and down in a volatile way while its overall progress remains relatively insignificant given the volatility and moves. Consider the 1-year uptrend on the Primary Chart. The trend does not form a powerful, steep upward slope, moving sharply higher for many weeks consecutively like other charts we have come to see in recent months, e.g., NVDA, AAPL.

Instead, the trend has largely been sideways with a modest uptrend with only a gradual incline despite the big moves within this well-defined channel. This could be a bear flag, though that is not yet confirmed. It's a scenario in any case that should be kept in mind on a break of the upward trendline from June 2022 lows.

1. Bear-Flag Scenario: Chart A (also shown on the primary chart)

Notice how the VWAPs confirm the largely sideways ranging action. The VWAP from the all-time high and the VWAP from 2022 lows have been containing the price action YTD in 2023. Despite the gentle uptrend slope, the anchored VWAP from the all-time high reminds us of a more dynamic and flexible measure of trend, which is down from the all-time high in 2021.

2. Anchored VWAP from All-Time High: Chart B

The anchored VWAP from the all-time high remains formidable to price. Notice is power in resisting price up until now. However, the last rejection did not send price to new lows. This confirms the choppy sideways thesis for now. While the dark-blue VWAP from the ATH did reject price in April 2023, price has remained well above the anchored VWAP from the major June 2022 low. Currently, the ATH-anchored VWAP lies at $2,038. A close above this level suggests at least further upside in the near term. Traders of all time frames should keep this area in mind—it's sort of like a super-highway. You don't want to run out in the middle of it without looking carefully both ways.

The measured-move area is also shown here. Note that this is a logarithmic chart, so the measured move is somewhat higher than on a linear chart. This post will attempt to display measured moves on both.

3. Three Anchored VWAPS from Key Pivots: Chart C

The anchored VWAPs on this chart confirm the consolidation thesis discussed above. The VWAPs are anchored to key swing lows and highs since the all-time high. NOtice how the VWAPs from these various pivots have been compressing and flattening for months. This signifies another major trend move is likely to occur when this long-term consolidation completes. Many hope it will be an upward move back to highs. SquishTrade is less confident of that conclusion given inverted yield curves (see prior posts on this); however, over the coming weeks, maybe months, choppy to somewhat higher prices can occur.

4. Triangle Patterns within Triangle Patterns: Chart D

Triangles are consolidation patterns. The fact that we see triangle patterns within triangle patterns supports the idea that this 1-year channel is potentially consolidative of the move that preceded it. No guarantees, but that seems to be a logical inference. Some might counter that this is a major "cup base" though others may struggle to see anything resembling something that might hold one's tea. We'll see. Note: This is a linear chart, with a measured move based on the linear scaling.

5. Triangle pattern on a Logarithmic Chart: Chart E

This chart shows a triangle on a logarithmic scale. So now, switching to log scale doesn't necessarily change the thesis just yet. The measured move for the log scale gives a 1-year measured move off of June 2022 lows around $2467. If we extend the measured move to a 1.272 projection of the first leg off the June lows, then it runs up around $3000.

Long-term view summarized: As long as the uptrend from June 2022 lows holds, as well as the VWAP from that same bar, price can continue to remain supported, i.e., not crashing, sideways, rallies and dips within the defined ranges. In SquishTrade's view, $2,400 - $3000 is likely the maximum level ETH may achieve between now and the likely recession foretold by the yield curves. But higher-for-longer monetary policy in major European and North American countries may keep the ceiling even lower than that. Caution is warranted unless / until certain persistent (and 40-year record) yield curve inversions have proven that they finally gave a false signal for the first time ever.

Shorter-Term Commentary

Directional traders may be disappointed in the coming 2-3 weeks. A flag within a flag suggests more choppy price action overall—at least until a breakout of either occurs. The smaller flag may breakout first to the upside and lead us to the upper edge of the channel. The larger flag may breakout to the downside, and lead us to new lows. But neither has happened just yet. So price action for now may respect the ranges that are in play—both horizontal ranges and diagonal ones (channels). But it appears that price could largely could remain rangebound from a broader perspective for the coming weeks.

Conclusion

Traders and investors love a major directional move. It sparks adrenaline (maybe) and a combination of dreams / hopes or fears / frustration. Some traders wait eagerly at various levels to fade the move (long or short) once it has started to progress in earnest. Others who may have timed a good entry may be busy counting their profits, while trying to calm down enough to figure out a proper exit, and writing on their foreheads a reminder to "move the stop to breakeven." And still others may be sitting back patiently on the sidelines for months or years and hoping for an ideal capitulatory low after the dust has started to settle between buyers and sellers who may finally seem to have exhausted themselves.

In short, the confusion and choppiness of sideways to slightly upward price action is merely the market doing price discovery between all sorts of players including long-term underwater buyers who bought above 3500 and keep hoping the price will rise just enough to make them whole (increased supply), long-term holders who are true believers in the holding (reduced supply unless emotions shake them out), short sellers (supply and potential demand when a squeeze starts), derivatives traders (supply and/or demand due to hedging flow), intraday traders, scalpers, and, let's face it, some gamblers too. In general, the market action is a device for transferring wealth from the impatient to the patient, according to one investing legend, Warren Buffett. But sometimes the patient can be the short-term trader and the impatient can be the long-term investor—because a long-term investor may lack the patience to enter or exit properly, and a short-term trader may have the patience and discipline to execute some excellent swing trades, provided risk is managed and entries and exits are well-planned, well-timed and well-executed.

Minor disclaimer: This post is in no way advocating any particular investing or trading strategy. Short-term trading and long-term investing can both be either devastating or profitable (or somewhere in between those extremes) to the person engaging in it.

And thanks for reading this and for your encouragement and support.
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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

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It's hard to say yet before the week has already begun, but it looks like price is trying to spend some quality time with the down trendline from the April 16, 2023 high. If the breakout occurs, first it will be important to see whether the breakout is a trap and fails, or whether it passes on a retest. If it confirms the breakout with a successful retest, then the smaller-degree bull flag remains in play and the upside target may be achieved.

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No breakout yet as of this update. As discussed above, the idea is for continued sideways to slightly lower (perhaps) consolidation within this parallel channel until such time as a breakout or breakdown occurs.

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ETH is finding resistance at the upper edge of the downward sloping channel, i.e., the unconfirmed bull-flag pattern that lies nested within a longer-term bear flag. Here is an updated view of this chart:

ETH also lies between all the longer-term anchored VWAPs discussed in the original post. Updated chart below:

Note also that price is right at the upper bound of one of the triangles (on a linear chart). A decisive close above that may imply a flag-channel breakout as well which could lead to the conditional targets discussed above (upper edge of longer-term bear-flag channel, as well as measured move and Fibonacci 1.272 targets).

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On a 4-hour chart, it appears that the breakout occurred with a successful retest of the downward trendline (the bull-flag channel's upper bound).

The next upside target logically is the VWAP anchored to the all-time high. This falls around $2037 currently.

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One way to gauge the continued validity / strength of the upward move is to focus on the gold uptrend line and channel from mid-June 2023 lows. It was this uptrend that propelled price through the upper boundary of the bull-flag channel shown in the main post above. And the VWAP anchored to recent swing lows is also a somewhat more flexible way to consider the short-term uptrend.

Note that RSI is also pushing to a new high today relative to the prior RSI high. The immediately prior RSI high. So with RSI trending upward, this has become the bulls game to lose (in the short-term at least). Don't forget that this entire pattern appears to be nested within a larger bearish pattern.

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July 5 update:

ETHUSD appears to be testing support at multiple trendlines at once this week.

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The pullback was deeper than the gold uptrend line would have suggested. But so far, the pullback has held critical support identified in the July 3 update—the VWAP anchored to the recent swing low on June 15. ETH saw a failed breakdown below this VWAP only to recover it, which can be a factor that support the short-term bullish case. If this recovery of this VWAP fails, however, this negates the short-term bullish case in favor of short-term bearish with price continuing in the downward sloping channel. If price holds above it, the breakout can still be in play.

Please note that the gold uptrend line has been adjusted to account for this recent pullback. The pullback this week fell slightly below the original trendline (by about $75.00). This can happen in the early stages of any move, where initial trendlines get invalidated. Sometimes, the initial trendline is invalidated because the anticipated move / breakout fails. This is why we manage risk. But sometimes the initial trendline can be invalidated even if the move ultimately succeeds. Specifically, even a move that succeeds may invalidate the first (steeper) trendlines in favor of forming more sustainable (less steep) slopes, and such shakeouts can run stops and test / annihilate early positions. This is why it helps to have a secondary short-term gauge for a move's continued viability such as a VWAP, moving average, Fibonacci proportion, expected-move estimate based on IV, or something else.

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Price is arriving today at the anchored VWAP from the all-time high (red line below in updated chart). The main post on June 24 discussed this VWAP as being important (at the time, it showed a value of $2038). This ATH-anchored VWAP is now at $2033, a few points lower. On June 3, SquishTrade mentioned that a logical target after a breakout above the channel would be the ATH-anchored VWAP.

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The breakout from the bull-flag channel (downward sloping blue-purple lines) at first failed and fell back below this channel's upper bound. This is the channel from the mid-April 2023 highs.

The updates on July 3-7, 2023, showed critical support for any viable uptrend (and continued breakout) as being the VWAP from the mid-June 2023 low.

So the anchored VWAP from the mid-June 2023 low held firm as support for the recent pullback this month, and the VWAP from the mid-April 2023 low held support as well. This increased the chances of a secondary rally and breakout above the downward sloping bull-flag channel.

But now the anchored VWAP from ETH's all-time high remains a point that has to be overcome for further progress upward. Please note the discussion in the main post about prior weekly tests of this ATH-anchored VWAP and how they have all failed with two-bar patterns (weekly bars). But the most recent failure did not push price significantly downward either, and prices have held trend support since the June 2022 lows last year.

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My technical notes for July 17, 2023:

Today, here and now, several reasons have arisen to question the viability of breakout from the smaller bull-flag channel.

1. The apparent breakout from the short-term bull flag seems to be unfolding in fits and starts—sporadic and intermittent bursts higher followed by deep retraces. This sporadic and choppy action, combined with the continuing decline in volume on the weekly chart, suggests that the larger bear-flag channel controls the smaller bull-flag channel. So the longer-term bear flag perhaps dominates the overall price action despite the existence of an apparent bull-flag channel breakout. In other words, the unreliable and choppy price action post breakout could be explained by the bull-flag channel’s position as nested within a larger bear-flag channel, and the larger bear-flag channel (see primary chart above) is consolidative / corrective despite moving higher: consolidative price action is more choppy, less trendlike, and more unpredictable than trendlike action.

2. Significant failure and reaction lower at the all-time-high anchored VWAP (red), which SquishTrade had mentioned as the initial logical target for a breakout.

3. ETH seems to be taking a bit too long to make a typical trendlike move higher following the apparent smaller bull-flag breakout. Yet ETH has held the anchored VWAP from the June 15, 2023, low.

4. ETH appears to be testing important support levels shown in the chart below. Note the confluence of support being tested today: (1) Fibonacci level (yellow); (2) the downward trendline that forms the upper bound of the bull-flag channel (purple); (3) anchored VWAP from June 15, 2023. See yellow box in chart below:

4. At what point should one conclude price has fallen back within the scope of the downward-sloping bull-flag channel?
—Price falls below the June 15, 2023, anchored VWAP
—Price falls and holds below the downtrend line from mid-April 2023 that forms the upper bound of the bull-flag channel

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PRIOR ANALYSIS SUMMARIZED
On June 24, the main post reviewed the consolidative nature of ETH’s price action since the June 2022 low. The analysis stated that ETH’s trend was largely sideways with a modest incline—and that this sideways to slightly upward price action appeared *consolidative* of the preceding 2022 decline. Despite a +130% move off the June 2022 lows, and another 99% move higher from the November 2022 lows, the chop and major retracements revealed that the price action was likely consolidative of the sharp and trending bear-market decline that came in 1H 2022. This is visible when looking at a higher-time frame chart such as the weekly primary chart that may be refreshed at the top of this post.

At the larger / higher degree of trend, SquishTrade discussed major VWAPs from the June 2022 low and ETH’s all-time high—those VWAPs were largely sideways with price contained between them. This confirmed the consolidative nature of the price action since the 2022 lows occurred. A few triangle patterns were also shown on log and linear charts (triangle patterns also represented this larger degree consolidation).

And an unconfirmed bear-flag channel—a > 1-year uptrend line that together with its return line creates a parallel channel, was noted. This modest uptrend from the June 2022 low presented the potential for prices to remain supported. In this context of consolidation, the post noted that “supported” meant that price action would remain consolidative / sideways and not crashing unless the uptrend broke.

Nested within the 1-year bear flag at the larger degree of trend was a shorter-term bull-flag (a downward-sloping channel). This was tracked in the updates for a few weeks as price appeared to be breaking above it. But the breakout appeared quite weak and never rose past $2027. SquishTrade questioned the viability of this breakout on July 17. Squish described the problem with price action as follows (quotation in italics):

"Today, here and now, several reasons have arisen to question the viability of breakout from the smaller bull-flag channel.

1. The apparent breakout from the short-term bull flag seems to be unfolding in fits and starts—sporadic and intermittent bursts higher followed by deep retraces. This sporadic and choppy action, combined with the continuing decline in volume on the weekly chart, suggests that the larger bear-flag channel controls the smaller bull-flag channel. So the longer-term bear flag perhaps dominates the overall price action despite the existence of an apparent bull-flag channel breakout. In other words, the unreliable and choppy price action post-breakout could be explained by the bull-flag channel’s position as nested within a larger bear-flag channel, and the larger bear-flag channel (see primary chart above) is consolidative / corrective despite moving higher: consolidative price action is more choppy, less trendlike, and more unpredictable than trendlike action.

2. Significant failure and reaction lower at the all-time-high anchored VWAP (red), which SquishTrade had mentioned as the initial logical target for a breakout.

3. ETH seems to be taking a bit too long to make a typical trend-like move higher following the apparent smaller bull-flag breakout. Yet ETH has held the anchored VWAP from the June 15, 2023, low.

. . . .

5. At what point should one conclude price has fallen back within the scope of the downward-sloping bull-flag channel?
—Price falls below the June 15, 2023, anchored VWAP
—Price falls and holds below the downtrend line from mid-April 2023 that forms the upper bound of the bull-flag channel

On July 24, one week later, price decisively fell below the June 15 low VWAP. After a retest or two, price continued to show weakness below this June 15 anchored VWAP.

In short, price failed in its breakout of the bull-flag channel. In this regard, SquishTrade has so far been incorrect in the analysis that the breakout of the smaller (nested) channel would lead to the top of the bear-flag channel. But the bear-flag channel with a modest uptrend from June 2022 lows remains valid and intact. It also provides a good level to watch when and if it breaks to the upside or downside. In any case, for now, price remains controlled by and contained within the larger-degree consolidation represented by the unconfirmed bear-flag channel.

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UPDATED CHARTS

Here are some updated charts.

1. Despite the major move downward this week, price has held (so far) between the all-time high anchored VWAP (green) and the June 2022 anchored VWAP (magenta):

The June 2022 VWAP should be watched closely if the selling accelerates. A break and hold below on a daily / weekly close may suggest the consolidation being finished and a new downtrend leg starting. But that has *not* happened just yet as of this update.

2. Fibonacci levels coincide with the June 2022 VWAP (magenta) as the next levels of support if selling continues. This is emphasized with a blue rectangle on the next chart. The levels to watch (for continued viability of the uptrend since June 2022) = $1450-$1525.

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A couple months ago in August 2023, SquishTrade discussed ETH's confluence of support in the $1450-$1525 zone. This zone comprised a confluence of levels: (1) the upward trendline from June 2022 lows (represented by an uptrend line / parallel channel); (2) a VWAP anchored to the June 2022 bear-market low, and (3) several retracement levels shown in the August 2023 update as well.

Since the August 2023 update, ETH has done a good job of holding above the anchored VWAP from the 2022 bear-market low. It has also held above the 50% retracement level shown in green below, which lies at $1510. Interestingly, the lows over the past 5 months of price weakness came in just a few points above this 50% retracement level—the October 2023 low reached $1520.

Now, ETH appears to be reaching the top of the bull-flag channel—remember this bull-flag lies within an apparent larger-degree bear-flag consolidation, and this larger dominating force of bear-flag consolidation has helped explain the choppiness and unpredictability that has dominated ETH's price action since June 2022.

Here is an updated chart showing the VWAP anchored to ETH's June 2022 lows along with ETH's uptrend channel (yellow) from June 2022 lows (an apparent but unconfirmed bear-flag consolidation). The light blue downtrend channel is the bull-flag channel that has guided the choppy, whipsawing price action since April 2022 highs.

Further, the last chart update below shows ETH's 50% retracement level coming in at $1510 as discussed above.

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Furthermore, ETH longs have their work cut out for them. A bullish view into year end 2023 and into the new year requires some key levels to overcome. The most immediate level to beat is $1830 (green retracement level shown below). The next level is $1903 and the downtrend line from April 2023 highs (represented as a bull-flag / parallel channel in this post's charts). If those to levels can be overcome decisively, bullish traders may reasonably consider the measured move from June 2022 lows, which comes in at $2200-$2573 (depending on whether logarithmically charted or linearly charted). Afterwards is the upper edge of the uptrend channel from June 2023 lows around $2700 in January 2023.