Maker (MKR-USD) continues to surprise cryptocurrency enthusiasts, as it hangs on to gains it has made since it was listed on cryptocurrency exchanges in the 3rd quarter of 2018. This analysis piece attempts to dissect the possible technical plays that could lead to trading opportunities in the pairing of the MKR token with Ethereum (ETH-USD).
Information from the Twitter page of the Maker Foundation team shows that circulation/usage of Dai is growing at a rate of 20% per month. There's also big news that the crypto investment fund of Andreesen Horowitz (a16z) purchased a full 6% of MKR's circulating supply. That invetment amounted to $15 million at the time.
This puts one of the leaders in the startup and tech investment space close to Maker and shows support for its stablecoin. These benefits the larger Ethereum ecosystem as well—with an investment of confidence in the disruptive power of smart contracts, stablecoins, and distributed ecosystems.
The analysis for MKR/ETH starts with a look at the weekly chart, which shows that the highs and lows of price action are captured by trendlines that form a symmetrical triangle. Indeed, the active candle for the week took a firm bounce from the lower trendline, although it has retreated in the last day of trading to rest at the 3.7871 ETH mark. Buying volume for the week is also quite good. The 9-day exponential moving average can also be seen providing dynamic support to the price candles.
MKR/ETH Weekly Chart: February 8, 2019
The daily chart confirms the picture on the weekly chart, but shows the daily price action clearly. The candle for the day has retreated from the highs imposed by the upper trendline resistance.
MKR/ETH Daily Chart: February 8, 2019
Putting all these points together, what are the possible trade scenarios for MKR/ETH going forward?
Trade Scenario 1
The scenario looks pretty straightforward. Price is expected to continue trading within the borders of the symmetrical triangle. The downward push from today’s high at the upper trendline boundary will continue until price hits the lower boundary, and another bounce from there is expected.
Eventually, price is expected to break out of one of the two boundaries. Traditionally, this is expected to continue the trend that the asset was in prior to the pattern’s formation. For MKR/ETH, this would translate into an upside breakout. However, an upside break must be accompanied by an increase in the buying volumes.
However, breakouts can also occur in the direction that opposes the initial trend. The important thing is to note when the price candles/bars have breached either of two boundaries by a 3% penetration.
It should also be noted that breakouts in triangle patterns tend to occur once the price has moved a distance of more than 60% from the triangle’s base to the point of trendline convergence (the apex). So traders of MKR/ETH should start to watch out for a possible breakout as we head into the 2nd week of trading for the month of February 2019.
It is also important to watch news concerning ETH as it may provide direction to the future breakout movement of the MKR/ETH asset.
The long-term, mid-term and short term outlook of MKR is as follows:
- Long-Term – bullish
- Mid-term – bullish
- Short term – neutral to bullish
It must be mentioned that this analysis was done on the weekly and daily charts, where price action typically takes several days or weeks to play out. Patience is therefore required to see out the various evolutionary patterns in the price action.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MKR-USD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.