The market cap of altcoins is forming a bullish inverse head-and-shoulders pattern.
A potential completion of the pattern would mark the beginning of alt season, according to one trader.
A bullish inverse head-and-shoulders price pattern is building in the combined market capitalization of altcoins. The term “altcoin” is short for “alternative coin” and refers to cryptocurrencies other than bitcoin (BTC).
A potential completion of the pattern would signal “alt season,” or outperformance of alternative cryptocurrencies relative to bitcoin and ether (ETH), according to technical analysis by Josh Olszewicz, a crypto trader and former researcher at Valkyrie Investments. Olszewicz analyzed the charts of altcoins, excluding ether and prominent stablecoins.
The inverse head-and-shoulders, one of the most trusted bullish technical analysis patterns in the market, forms when an asset chalks out three price troughs, with the middle one being the lowest. A breakout or a bearish-to-bullish trend change is confirmed once prices rise above the trendline (neckline), connecting the peaks between the lows.
Chartered market technicians ascertain the post-breakout price target by adding the depth of the pattern (distance between the low of the head and the neckline) to the breakout point.
If you have a look at the altcoin’s daily market cap chart, the bottom of the left shoulder, $188.4 billion, was created in June 2022; the low of the head, $173.23 billion, was made at the end of December; and the bottom of the right shoulder at $177.36 billion appeared in June this year, data from TradingView shows.
The bounce from the right shoulder low has stalled in the past three weeks, with the market cap consolidating at around $230 billion at press time. The pattern will be complete once the market cap rises past the neckline resistance located near $300 billion.
“The altcoin market cap is showing some sort of triple bottom/inverted head-and-shoulders situation,” Olszewicz said in a market update.
“I don’t buy the head-and-shoulders pattern that’s sitting in the middle of consolidation. I am waiting for a break above $300 billion,” Olszewicz added.
The chart shows two scenarios: one where the altcoin market cap turns lower from here, invalidating a potential inverse head-and-shoulders pattern.
The other scenario involves the altcoin market cap rising past $300 billion, signaling an onset of alt season.