Ethereum (ETH) Rally Failed To Trigger A Short Squeeze, Here Is What It Means

Ethereum (ETH) Rally Failed To Trigger A Short Squeeze, Here Is What It Means

Ethereum (ETH) has been on a bullish spree the past few days as the price pumped aggressively on some favorable news. That being said, it failed to preserve its gains and had to retrace significantly. Initially, a lot of traders thought that this pump in ETH/USD was a short squeeze gone a bit far but a simple look at ETHUSDShorts would tell you that this was not the case. The number of margined shorts against ETH/USD were completely unaffected by the pump in Ethereum (ETH). Now, here is something that is very important to note. Normally, we look at ETHUSDShorts as a contrarian indicator. When the number of margined shorts rises too much, we think the retail bears have become too confident and the professional bears are likely to profit off their enthusiasm.

However, at this time, there is a lack of retail traders wanting to short Ethereum (ETH). Most of the people playing these games around at this level are already good at what they do. So, while ETHUSDShorts can be taken as a contrarian indicator, it can also be taken as a sign that the bears in the market at this point are willing to bet big that the bear market is not over yet and the price has yet to come down. Besides, there is no need to be shorting Ethereum (ETH). There are always plenty of opportunities in other markets. So, we are going to assume that the majority of bears in this market are either those that are confident that the market is due for further downside or those that are hedging by shorting Ethereum (ETH).

Certainly, there are some overenthusiastic bears that would go short at a 50x leverage to see the price come down like yesterday. Most of them get wiped out but the fact that we have not seen a short squeeze so far even when there was opportunity suggests that the people shorting ETH/USD at this point have their bases covered. The bulls are now running out of opportunities to trigger a short squeeze. Here’s another interesting observation. The daily chart for ETHUSDShorts simply shows us the number of margined shorts. It does not show us how many of them are high leverage shorts. So, if most of these shorts are reasonably risked, then it would be ill-advised to have to rely on this indicator to expect a rally in Ethereum (ETH).

ETHUSDShorts is certainly close to overbought territory on the daily time frame but on the weekly time frame it has plenty of room to run. This goes on to show that short term the price could mislead traders into thinking the bear market is over but these are just orchestrated ploys to prolong the bear market such that it ends up engulfing more bulls before the next downtrend. We have had a Binance hack and a WeChat ban but that news has had no significant effect at all. This further vindicates our view that the market has yet to inflict maximum pain.

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