A dead cat bounce is a term typically used by traders to describe “a brief recovery in the price of a declining asset that is shortly followed by a continuation of the downtrend.”
Of course, we won’t know until hindsight that we’re in a downtrend, but there tools and areas of price action to watch that hopefully give us better odds of getting the next move right.
After the massive drop in May, many crypto assets have recovered vigorously since their bottoms were formed just this past weekend.
The question is now whether these upward moves are sustainable or is this a “dead cat bounce” in the works? Let’s take a quick look at a couple of charts to find areas of the market to watch.
ETH is the token that fuels the largest network of decentralized applications on Ethereum, and it’s price dropped like a rock in May after reaching all-time highs against the U.S. dollar, just shy of the $4,400 handle.
On Sunday, it hit a low of around $1,736 (a 60% drop!) before traders stepped in to buy up the carnage and taking it to its current trading area around $2,800 for a 60% bounce. What a week!
The market is currently in the Fibonacci retracement area of that large swing move lower, and with stochastic signaling overbought conditions, this is arguably the short-term top for ETH/USD.
If so, look for a potential move back to $2,000 this week, especially if the crypto markets get hit with another round of FUD (Fear, Uncertainty, Doubt) news stories. But if ETH/USD can break above the 61% Fib (around $3,350), that could draw in traders to play the longer-term trend higher.
Uniswap hits the watchlist after a 132% bounce from it’s Sunday low around the $13 handle, following its colossal fall from a peak around $45 at the beginning of May. And while a 132% gain in a few days isn’t anything to sneeze at for sure, the market isn’t anywhere close to getting back to pre-crash levels, likely worrying a lot bulls out there that another dip might be ahead.
UNI could possibly see technical resistance soon as it is now trading around a broken minor support area / 61% Fibonacci support level around $33. Will short-term technical traders who bought super low think to take profits here? Or how about bears on the crypto space looking to short this dead cat bounce?
For now, the upside momentum still seems valid, but if the market consolidates and/or bearish reversal patterns appear, then look out for a potential move back to the $20 handle before longer-term bulls are likely step in.
If the upside momentum does have legs though, a break above the $33 is a bullish sign and one that could draw in traders to push UNI/USD back to near all-time highs in no time.
What do you guys think? Is this a dead cat bounce in ETH and UNI? Or will the diamond hand crypto bulls continue to push the markets higher in the short-term?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.