Is another pullback on the cards as price forms massive divergence with the RSI?
Ethereum (ETH0 price action achieved an epic bullish conclusion this week, as the market extended its recovery. The cryptocurrency surged past the $4,000 milestone and broke through the $4,100 resistance.
ETH price exchanged hands at $4,218 at press time, after a 21% bounce back from its weekly low. Analysts were eager to see whether price could soar past the $4,500 price point, mostly because of its significance as an altcoin season indicator.
The $4,500 Ethereum (ETH) price point confirmed a breakout from previous support and resistance structures. Moreover, another key altcoin season indicator was recently achieved.
Bitcoin dominance has historically been a healthy indicator for liquidity shifts. Dominance above 60% favors BTC liquidity, while BTC dominance below 60% favors altcoins.
BTC dominance just slid below 60% for the first time in 6 months. Meanwhile, ETH dominance pushed above 13% after adopting a parabolic curve.
The surge in ETH dominance played out in noteworthy ways that also seemed to align with altcoin season characteristics. For example, ETH ETF flows have been outpacing BTC ETF flows.
ETH ETF registered a net positive flow of $174.3 million since the start of August. Meanwhile, Bitcoin experienced a net negative flow of $559.1 million.
This outcome meant that institutional demand shifted in favor of Ethereum (ETH). This was yet another sign typically associated with altcoin season.
The institutional cohort has been favoring ETH, and this suggests that it could lead the altcoin charge, potentially into new historic highs. ETH was only about 15% away from retesting its previous ATH at the time of observation.
According to Coinglass, ETH short liquidations amounted to over $202 million. The last time ETH shorts had such a rough day was on 10 July which was characterized by a resistance breakout, followed by a massive uptrend.
Interestingly, ETH price also demonstrated a similar resistance breakout above $4,100, triggering another short squeeze.
A 35% upside occurred after the resistance breakout before ETH experienced its next resistance level. ETH might be on track to rally past $5,000 if a similar situation occurs.
However, there was a prominent difference between now and then, and it could trigger a different outcome. Ethereum (ETH) price pushed above July levels, but its RSI remained below its July top.
The bearish divergence pattern suggests that another pullback could easily occur after this latest rally.
However, that will depend on a few factors such as whether demand will prevail even after the bullish momentum from the short squeeze gets exhausted.
The extent of profit-taking may also come into play but the latest upside also confirmed that the bullish bias remained strong.
Interestingly, whale activity in the last 2 days demonstrated some sell pressure. Whale orderbook flows revealed that roughly $199 million worth of ETH spot sell orders were fulfilled in the last 48 hours. OKX registered $32.6 million worth of sell pressure during the same period.
Meanwhile, both exchanges collectively recorded over $6.1 billion in net fulfilled sell orders in the derivatives segment.
These observations could signal that whales were taking some profits before the next selloff, and they positioned themselves to benefit through short positions.
The caveat here is that the massive number of shorts could also trigger a bigger short squeeze if the price maintains its bullish momentum.
Leveraged longs might be at risk, especially now that funding rates have been rising for the last 7 days, signaling higher risk appetite among the bulls.
A major pullback could thus set Ethereum (ETH) up for another pullback characterized by a long squeeze.
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