The bearish setup positions Ethereum price to extend the decline toward $2,000.
Ethereum's native token Ether (ETH) rates may fall to a two-month low after it slid below support at around $2,954, based on a classic trading pattern.
The $2,954 level represents a so-called neckline constituting a head and shoulders setup. In detail, the said support level appears to be a floor to three peaks, with the middle one (HEAD) higher than the other two (SHOULDERS).
A breach below the $2,954 level signals a trend reversal, suggesting that ETH/USD may fall by a length equal to the distance between the head's peak and neckline.
Peter Brandt, CEO of global trading firm Factor LLC, shared the bearish pattern late Monday, noting that a successful breakdown below $2,954 could crash prices to arou $2,000.
"I am NOT saying I believe it, and I am saying I am not shorting it — but like it or not, if you own ETH, you will have to deal with it. This possible H&S exists, whether it is completed, fails, or morphs, it exists."
Research conducted by Samurai Trading Academy notes that head and shoulders reach their projected target almost 85% of the time.
Ether traded at $2,805 as of 00:22 UTC, its lowest level since Aug 7. However, the cryptocurrency later recovered to reach an intraday high of $3,104 and was wobbling around $3,000 at the time of writing.
The seesaw price moves came as a part of a correction trend that started after ETH/USD formed a sessional top at $4,030 on Sept 3. As a result, the pair initially fell by as much as 25.34% to hit $3,009. It then recovered back to as high as $3,675.
Nonetheless, bulls started losing control all over again at the beginning of this week as a wave of selling triggered by a tumult in China's heavily indebted property sector hit crypto and traditional markets alike.
Ether dropped by 10.58% on Monday.
Some analysts anticipate that the Ethereum token would recover again if its price held above historic support levels. For instance, pseudonymous chartist PostyXBT mentioned $2,850 as "an important level" that kept Ether's bullish bias intact.
"Good to see ETH testing a key level of support at the same time as BTC," the Twitterati noted.
"Similar to BTC at ~$40k, ~$2850 is an important level that must hold."
PostyXBT's chart setup envisioned ETH/USD to retest $4,000 in the coming sessions.
ETH/USD weekly price chart featuring $2,850 level's history as support and resistance. Source: TradingView.com, PostyXBT
The Crypto Monk, another pseudonymous analyst, added that the latest declines flushed out weak traders and presented opportunities for strong hands to buy and send the Ether prices to a new all-time high.
Brandt also noted that ETH/USD's drop might lead to a potential "bear trap," a technical pattern that occurs when an asset's price performance incorrectly signals an end of a bullish trend. As a result, traders with leveraged short positions could suffer losses should the spot ETH/USD rates rebound.
"I have a strong suspicion that recent weakness, especially overnight, successfully washed out weak longs and might have trapped some bears," Brandt wrote.
"Of course, subsequent price action would need to confirm this."