Last week, a news story poured fuel onto one noteworthy stock’s rally…
And it could lead to a substantial gain for traders who are paying attention to the cryptocurrency space.
On May 24, the Securities and Exchange Commission (SEC) approved a rule change. The change makes it all but certain that the SEC will soon approve ETFs that track Ethereum.
Ethereum is the second-largest cryptocurrency behind Bitcoin.
The SEC approved the first Bitcoin ETFs nearly six months ago.
And ever since, investors have been waiting with bated breath for the approval of an Ethereum ETF.
The day after the SEC’s announcement last week, a slew of cryptocurrencies and stocks soared.
One of those stocks is Coinbase (COIN).
Coinbase is the largest online exchange for cryptocurrencies in the world. Following the SEC’s ruling, COIN shot up by 8.6%.
And traders may have the chance to see significantly bigger gains over the next few months.
Let’s take a look at what we’re seeing…
A Promising Setup
The chart below shows COIN’s price movement over the past 12 months.
Two things should immediately catch your eye.
The first is the Moving Average Convergence Divergence (MACD), located in the middle of the chart. The MACD identifies changes in momentum.
As you can see, the blue MACD line has crossed above 0. This bullish signal suggests momentum is accelerating upward.
The second thing is the Relative Strength Index (RSI) at the bottom of the chart. It has crossed above 50 and is rising higher.
The RSI is another momentum indicator that measures the speed and strength of price movements.
When the RSI crosses over 50 and keeps rising, that indicates an upward trend as well.
Both indicators hint that COIN has more room to run from its current levels.
To get an idea of how high COIN could go, we can review a similar setup that occurred three months ago.
Here is COIN over the past six months:
COIN experienced a steep slide through January of this year. Then it found a bottom at the start of February and began to turn upward.
On the chart, “1” and “2” reveal the same two signals we highlighted above: the MACD line rising above 0 and the RSI rising above 50.
Yet during this time, the 10-day moving average (MA, blue line) rose above the 50-day MA (red line) as well (“3”).
Moving averages illustrate the average price of a stock over a specific period. When the shorter-term MA rises above the longer-term MA, it signals a bullish trend.
So in mid-February, COIN’s chart showed three likely signs of a sharp run higher.
The stock went on to rocket an additional 73% over the next four weeks.
Today, we’ve only seen two of those signals light up.
But COIN’s 10-day MA is growing closer to the 50-day MA.
So COIN could be setting up for another solid run higher.
Free Trading Resources
Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.
Strong Fundamentals
Outside of its technical attractiveness, Coinbase has strong fundamentals backing it as well.
On May 2, the company reported first-quarter earnings results that blew analyst forecasts out of the water.
COIN’s revenue has nearly doubled over the past year. In fact, the pace of COIN’s revenue growth has accelerated over the past three quarters.
A substantial increase in the value of cryptocurrency transactions happening on its platform is driving this growth.
In the first three months of the year, customers moved $312 billion worth of crypto on Coinbase. That’s 116% more than a year ago.
Ultimately, Coinbase is benefiting from increased interest in cryptocurrency… And its stock is looking set to rally further.
That’s especially true if the SEC approves an Ethereum ETF in the coming months…
One way or another, traders who keep a close eye on this stock will spot opportunities to profit as these elements all align.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict