Crypto market showing inverse head-and-shoulders pattern
A powerful Bullish reversal pattern identified during a significant swing low.
The Inverse Head-And-Shoulder Pattern
The Inverse Head-And-Shoulder Pattern is a dominant reversal pattern – it is also known as the Head-And-Shoulder Bottom. I will be referencing the work of the great analyst and trader, Thomas Bulkowski. Mr. Bulkowski is a leading authority on chart patterns. He has published several books – the most important of which is the Encyclopedia of Chart Patterns. Mr. Bulkowski has painstakingly backtested and forward tested chart patterns to identify not just their statistical averages and probabilities, but he has analyzed the common behaviors and construction that one should observe in order to verify said patterns. He also has a rating scale per pattern. For the Inverse Head and Shoulder pattern in a bull market, the rating is seven out of twenty-three. For a bear market, it is six our of 19. The number one is the best ranking. When looking at the rankings for the inverse head and shoulder pattern in either a bull or bear market, we can see that this pattern is robust. In fact, Bulkowski writes that this pattern rarely fails and is exceptionally profitable.
The statistical averages that Bulkowski presents are very bullish. He indicates that there is an average rise of 38% after the neckline is broken and that the percentage of time that price meets that target is a staggering 74%. What does that mean for the cryptocurrency market? The chart above is the total cryptocurrency market cap, currently trading just below $200 billion ($196 billion). A +38% rise would add +73.447 billion and bring the market up to roughly +$267 billion. And the best part about it is we have a three in four chance of that happening. But let’s look at some individual cryptocurrencies and see what a +38% move up means for them.
Bitcoin (BTC): A +38% gain from a break of the neckline would mean Bitcoin would gain +$2,758.90 to bring Bitcoin to – surprise, surprise – $10,019.25.
Ethereum (ETH): A +38% gain from a neckline break for Ethereum adds +$56.16 to bring Ethereum up to 203.93.
Cardano (ADA): While not shown, Cardano’s 4-hour chart has a very sheer neckline, indicating a very fast and strong drive up when and if the neckline breaks. A neckline break at 0.0362 would mean that +38% put Cardano’s new price nearly exactly at 0.05 even – 0.05009906.
A question I have is this: is it a coincidence that a 38% gain from the present value area creates a stopping point near some very natural and critical resistance levels? $10k for Bitcoin, $200 for Ethereum, and $0.05 for Cardano… seems a little bit more than a coincidence. This phenomenon is not reserved for just the three cryptos listed above, but a very consistent even across the entire cryptocurrency market. Coincidence or not, we at least have a projected level that we should anticipate this market to reach before the end of 2019. As we transition from November into December, we should be prepared to see a significant move higher over the next few weeks. I do believe a return to the $10,000 value area to end 2019 is certainly a predictable and conservative price target.