Ethereum Price Alert: Dominance Overheating Signals Potential Pullback

Ethereum’s recent performance has been impressive, with the Ethereum price surging significantly in May. This rally has pushed its market share back towards the crucial 10% level. However, a closer look at the charts reveals signs of overheating that suggest caution may be warranted for ETH dominance bulls.

Is Ethereum’s Dominance Reaching a Peak?

The strong recovery in Ethereum’s share of the total crypto market capitalization has led to its daily Relative Strength Index (RSI) reaching levels not seen since May 2021. Historically, such elevated RSI readings on ETH dominance charts have preceded significant pullbacks. For instance, a similar peak in early July 2021 was followed by a substantial drop in ETH.D over the subsequent months.

• Current ETH.D daily RSI is above 80, mirroring the May 2021 setup.
• Previous instances of extreme RSI levels led to market share declines.
• ETH.D remains below its 200-day Exponential Moving Average (EMA), a key resistance level.

This technical picture suggests that Ethereum’s market share might be nearing a local top. The metric could potentially decline towards its 50-day EMA support, currently around 8.24%, indicating a possible rotation of capital out of Ethereum into other altcoins.

Bearish Divergence Hints at Ethereum Price Correction

Looking at the Ethereum price chart against the US Dollar (ETH/USD) on a four-hour timeframe, a notable technical pattern is emerging: a bearish divergence. This occurs when the price makes higher highs, but momentum indicators, like the RSI or MACD, fail to follow suit and instead make lower highs.

According to analysts, ETH is displaying ‘three clear drives of divergence’. This setup often signals trend exhaustion and can precede a price reversal. Potential support levels, aligning with Fibonacci retracements, suggest a possible correction is on the horizon.

With ETH trading near the $2,740 level, profit-taking pressure could increase. This might open the door for a short-term correction. Potential downside targets based on Fibonacci levels are around $2,330 or even $2,190, representing a potential 10-15% drop from current prices.

What Does This Mean for Your Crypto Market Analysis?

For those performing Crypto market analysis, the signals from Ethereum are mixed. The recent rally shows strong buying interest, but the technical indicators on both price and dominance charts point to potential short-term weakness. This situation highlights the importance of considering multiple metrics and timeframes when assessing market health.

The potential for a pullback, while concerning for short-term holders, is viewed differently by others. Some analysts see any significant dip as a potential opportunity.

Is a Pullback a ‘Buy the Dip Crypto’ Opportunity?

Despite the near-term bearish signals, some market participants maintain a positive long-term outlook for Ethereum. The perspective is that any upcoming price correction could serve as a strategic entry point – a classic Buy the dip crypto scenario.

Analysts like Michaël van de Poppe suggest that a decline could precede a move towards higher price targets. Veteran trader Peter Brandt has even predicted a significant rally towards $3,800 or higher.

Therefore, while the technicals suggest caution in the immediate future due to potential overheating and divergence, the long-term sentiment among some analysts remains bullish, viewing any weakness as a chance to accumulate ETH.

Ethereum Price Prediction: Short-Term Caution, Long-Term Optimism?

Based on the current analysis, the short-term Ethereum price prediction involves potential downside risk due to overextended dominance and bearish divergence. A 10-15% correction towards the $2,300-$2,200 range is plausible if these technical signals play out.

However, the long-term outlook from some market observers remains positive, with targets ranging from $3,500 to $3,800 or even higher. This suggests that while volatility may increase in the coming weeks, the underlying trend could remain upward once the potential correction is absorbed.

In conclusion, Ethereum’s recent surge and reclaiming of 10% market dominance is a notable achievement. However, technical indicators like the overbought RSI on dominance and the bearish divergence on the price chart signal potential short-term headwinds. While a pullback seems likely in the near term, some analysts view this as a potential ‘buy the dip’ opportunity before a possible move towards higher price levels in the future. Readers should conduct their own research and consider the risks involved in crypto trading.