Cardano (ADA): Should Bounce to $1.80-2.30 Before Moving Lower Again

My Elliott Wave Principle (EWP) count suggests ADA completed a significant 5^th wave top back then and is now going through a multi-month to multi-year corrective Bear market. Allow me to explain using Figure 1.

Figure 1. ADA Weekly chart with EWP count and technical indicators.

The recent break below the January 2018 high implies a bear market is underway

Applying the EWP to Cardano, I find the crypto topped for a Cycle 3 wave January 4, 2018, at $1.38. It bottomed out for a Cycle 4^th wave December 7, 2018, at $0.026, and then rallied in five (blue) Primary waves to the recent All-time high (ATH) September 2 last year at $3.10. Since the ATH, Cardano has declined back below the 2018 high. Last week (January 10, 2022), it bottomed at $1.07, losing 65% of its value. This price overlap means the long-term Bull run has most likely ended, and ADA is going through a multi-month Bear market. Based on the EWP, Bear markets, which essentially are corrections in price that last several months to years, comprise at a minimum of three waves: A, B, C.

The current technical indicator setup shows positive divergence (dotted green arrows); meaning price went lower on decreasing weakness, and less momentum, as well as that money is flowing back into the cryptocurrency (MFI14). The latter is encouraging because liquidity drives markets higher. Besides, ADA so far bottomed right in the initial support zone (green dotted horizontal lines), which I had outlined to my premium crypto trading members as being critical for now.

All of this evidence suggests that if last week’s $1.07 low can hold, ADA is nicely set up for a multi-week bounce, similar to March-April 2018. Thus, from an EWP perspective, I can say, “Wave-A is most likely complete, and wave-B is now underway.” However, it is unclear how far the B-wave bounce will go before ADA succumbs to the C-wave lower.

Thus, all I can go by, using the currently available price data, is the standard Fibonacci-based retrace a typical B-wave does: 38.2 to 62.8% of wave-A, with the possibility of less (23.6% or more 76.4%). That makes the 50% retrace, at $2.08, nicely in the middle, with a possible deviation of +/-24c. As such, the ideal target zone for the B-wave bounce is $1.84-2.32, and when more price data becomes available, I can narrow it down.

Please remember the 2018 bounce was weak (only 23.6%), and B-waves also comprise three waves (a, b, c) because it is a correction of a more extensive correction. Thus, the path to the target zone will be tricky and may disappoint. As of now, I do not have enough price data available to determine these three smaller waves accurately, so we’ll have to be patient and let the market communicate to us.

Bottom line: Cardano is most likely in a prolonged bear market. Based on the EWP, this environment comprises at least three waves (A, B, C), and ADA may just have completed wave-A at last week’s $1.07 low and started wave-B. The latter is the well-known “dead cat bounce.” How high the cat exactly bounces is initially unknown, but a 38.2 to 62.0% retrace of the initial “fall” (wave-A) is typical.

That targets $1.84-2.32. Bounces are often wild and erratic, so caution is advised from a trading perspective: smaller positions, tighter stops than in a Bull market. Once the bounce completes over the next several weeks, a wave-C should take hold, last several more months, and target ideally around $0.40s. But for now, let us first focus on the bounce scenario: one step at a time.