Crypto Update: Litecoin Trying to Carve a Bottom

Litecoin (LTC/USD) printed a fresh yearly low of $22.17 on December 14, 2018. At that point, the market was down by over 92% from last year’s high of $304. While the market looks bearish, Litecoin may be at a point where the risk to reward ratio is highly favorable. After all, it has nosedived so deep that bottom pickers, bargain hunters, and possibly smart money investors have started to take an interest.

In this article, we reveal how Litecoin may be carving a bottom.

Trading at Accumulation Levels

Before Litecoin could have started its parabolic run in November 2017, it traded sideways between $19 – $50 from May to August 2017. During this period, interest in the market skyrocketed. From a weekly volume average of 207,305 entering April 2017, the number exploded to 718,584 on the first week of May 2017. The average weekly volume continued to rise until the end of August 2017 when the market printed volume of 3.117 million Litecoin units.

This exponential rise in volume is an indication that participants only started to feel bullish about Litecoin after it went above $19. If participants showed interest at these levels before, they are likely to show interest again. So far, they are reacting as expected.

Weekly chart of LTC/USD on Coinbase

A look at the weekly chart shows that volume started to significantly decline in January 2018. It became anemic by the end of October.

Nevertheless, volume started to pick up in November 2018 when Litecoin went below $50. Volume has remained relatively healthy since. This may be an indication that participants are once again starting to show interest at these levels.

More importantly, the surge in volume has enabled Litecoin to move up by over 40% from this year’s low. This price action may be interpreted as a dead-cat bounce. However, the daily chart shows otherwise, as it is forming a bullish reversal pattern.

Emerging Inverse Head and Shoulders Structure

An examination of the shorter time frame shows that Litecoin is struggling to close above $33.50. This is not surprising. $33.50 used to be a key support level.

When participants rejected lower prices in September 2017, the price action inspired a parabolic run that saw Litecoin climb as high as $420 in December 2017. Now that the market is trading below $33.50, we expect it to act as strong resistance.

Daily chart of LTC/USD

The good news is that the market is printing an inverse head and shoulders pattern in an attempt to breach the resistance. The higher low setup of $27.48 on December 27 should help bulls take out $33.50. However, they’ll need heavy volume to go above that level as bears are expected to put up a strong fight to keep market control.

Projected Price Action

We expect Litecoin to stay in base building mode while it range trades between $22.00 – $33.50. This is the market’s way of carving a bottom and that view remains valid as long as Litecoin stays above $22.00.

On the other hand, Litecoin may become slightly bullish as soon as it moves above $33.50. Take out that resistance and we may find the market trading in a new range between $33.50 and $50.00 with a midpoint at $41.74.

Above $50 is where Litecoin can really become exciting as the next meaningful resistance stands at $100.

Litecoin’s support and resistance levels

If you’re a breakout trader, a good time to buy is on the retest of $33.50 as support after the inverse head and shoulders breakout. Bottom pickers may set bids at $27.72 and/or $22.

Bottom Line

With Litecoin trading at a key price area, we believe that participants have once again taken interest in the market. A breakout from the inverse head and shoulders pattern should help validate our assumption. Otherwise, Litecoin may revisit our range midpoint of $27.72 or even $22.

Our view becomes invalid once LTC/USD trades below $22.


Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.