A closely watched cryptanalyst believes that Ethereum (ETH) could be preparing for a rally on the road to liquidation from traders who are bearish on the leading smart contract platform.
In a new blog post, Justin Bennett says Friday's rally in the S&P 500 (SPX) could hint at near-term performance for crypto markets.
According to the analyst, cryptocurrencies tend to follow in the footsteps of the stock market, but there appears to be a lag between the two asset classes. Bennett adds that if cryptocurrencies take cues from stocks, he sees Ethereum clearing resistance at $1,840.
Bennett says that an Ethereum breakout could trigger a short squeeze, as he notes that there is a "significant group" of short selloffs above the $2,000 price level for ETH.
A contraction short occurs when a large number of traders who have shorted an asset decide to cut their losses in response to an unexpected price rise. The squeeze then triggers additional manifestations.
says Bennett,
โThat could be telling, since cryptocurrencies like to tarGet these areas, and $2,030 is the August 2022 high. Much longer selloffs are below current levels, but proximity matters, so short selloffs of up to $2,000 may weigh on ETH in the short term.โ
However, Bennett says that the clock is ticking for cryptocurrencies and Ethereum. According to the trader, the short contraction of Ethereum should happen in the next few days. If not, he says the rally may not materialize at all.
โBut I would like to see crypto 'catch up' with stocks sooner rather than later if this materializes.
If we don't see ETH offloading these shorts in the next few days, that's less likely to happen."
At the time of writing, Ethereum is trading at $1,818.
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