Litecoin: Breakout Implies Higher Prices
What an incredible year 2017 was for cryptocurrencies. The entire sector finished the year on an incredibly high note. Then all the euphoria and enthusiasm that fueled this move quickly soured, and the whole complex came crashing down.
To put things into context, at one point, cryptocurrencies reached a market cap of $830.0 billion; four weeks later, that figure hit a low of $280.00 billion.
This was indeed a crash, and anyone who was caught up in it understands what a relentless sell-off can feel like. Although the sell-off was fierce and painful, corrective price action is always necessary in a bull market because it restores health to a bullish trend and prevents it from becoming overheated.
Now that this sell-off has run its course, opportunities abound as I believe that a number of cryptocurrencies are setting the stage for another move toward higher prices.
One of these cryptocurrencies is Litecoin, and I am going to take an in-depth look at its price chart and outline the recent developments that have led me to believe that LTC prices are all set to make another run toward higher Litecoin prices.
First let’s begin by taking a look at following Litecoin price chart to see the magnitude of the sell-off that has just stricken LTC prices.
Chart courtesy of TradingView.com
This LTC price chart captures the magnitude of the sell-off using the Fibonacci retracement numbers.
The Fibonacci retracement numbers are a popular tool used by traders because it effectively identifies countertrend levels of price support and resistance. The theory surrounding the Fibonacci numbers is that the price of an asset will retrace a certain percentage of its primary move before it finds its footing and resumes the primary trend.
On average, when this tool is applied to an investment such as a stock, traders will be aiming to cover their short positions and enter a long position when the price of the asset falls into the range of a 50%–62% retracement.
Cryptocurrencies, on the other hand, are a wild beast of their own, and they have a tendency to take this a step further. The 79% retracement level is where many cryptocurrencies have gravitated to during this current market sell-off.
The Litecoin price chart clearly illustrates that the 79% Fibonacci retracement level is where LTC prices finally found their footing and established a level of price support.
The theory behind the Fibonacci numbers states that the current correction has likely run its course and the primary move can now reassert itself. This is obviously a bullish notion, suggesting that higher LTC prices are on the horizon, but one indication is never enough to assume such an outcome. Therefore, I have provided the following indications on the Litecoin price chart that support this notion of higher prices.
Chart courtesy of TradingView.com
This Litecoin price chart illustrates that the acceleration in price that occurred late last year—and the correction in price that followed—has been constructive in nature. Constructive price action is responsible for creating and sustaining a bullish trend, and it contains two distinct waves: an impulse wave and a consolidation wave.
The impulse wave, which is highlighted in green in the above chart, is advancing in nature, and this is where the cryptocurrency’s price stages a sustained and accelerated move toward higher prices.
The consolidation wave, which is highlighted in purple, is corrective in nature, and this is where the cryptocurrency’s price corrects and refrains from staging an advance. Corrective price action is a necessary step in every bullish trend because it unwinds overbought conditions, creating the necessary environment to set up the next advance via an impulse wave.
On February 14, the LTC price broke out above resistance outlined by the consolidation wave, suggesting that this wave is complete and that an impulse wave is currently in development, where higher Litecoin prices are likely to prevail.
This notion of higher prices is being supported by the MACD indicator. MACD is a simple and effective trend-following momentum indicator that is used to distinguish whether bullish or bearish momentum is influencing the price action. This is important information because a cryptocurrency cannot sustain a move in either direction without the applicable momentum supporting it.
For example, once the impulse was complete, a bearish MACD cross was generated on December 22, 2017, correctly implying that bearish momentum was pressuring LTC prices lower.
On February 8, 2018, a bullish MACD cross was generated, and it correctly implied that bullish momentum was influencing the price action in Litecoin, meaning that prices were likely to appreciate.
All these indications are currently supporting the notion that higher Litecoin prices are currently on the horizon. As long as these indications remain in bullish alignment and support such an outcome, I will continue to hold a bullish view on LTC prices.