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A surprise rally to $250 took place between October 25 and 26, pushing up the price of Ether (ETH) from $1,345 to $1,595. The move prompted $570 million in liquidations in bearish Ether bets on derivatives exchanges, which was the biggest event in more than 12 months. Ether’s price also broke above the $1,600 level, which was the highest price seen since September 15.

Let’s see if this 27% rally over the past 10 days reflects any signs of a trend change.

Ether/USD 4 hour price index. Source: Trading View

It should be noted that another 10.3% rally towards $1,650 occurred three days later on October 29, and this triggered an additional $270 million in short-seller liquidations on futures contracts. term ETH. A total of $840 million in leveraged shorts were liquidated in three days, representing more than 9% of total open interest on ETH futures.

On October 21, the market turned bullish after San Francisco Federal Reserve Chair Mary Daly mentioned intentions to slow the pace of interest rate hikes. However, the previous tightening move by the US central bank led the S&P 500 stock index to a contraction of 19% in 2022.

Despite the stock market rally of 5.5% between October 20 and 31, analysts at ING Noted on Oct. 28 that “we do indeed expect the Fed to open the door at a slower pace through formal forward guidance, but it won’t necessarily walk through them.” Additionally, the ING report added: “It could be that we get a final 50bps in February which would then mark the top. This would leave a terminal rate of 4.75% to 5%.

Given the mixed signals from traditional markets, let’s take a look at Ether derivatives data to understand if investors have supported the recent price rally.

Futures traders kept a bearish stance despite the rally from $1,600

Retail traders generally avoid quarterly futures because of their price difference from spot markets. However, they are the instruments of choice for professional traders because they avoid fluctuating funding rates which often occurs in a perpetual futures contract.

Annualized premium of 3-month Ether futures contracts. Source: Laevitas

The indicator should trade at a 4-8% annualized premium in healthy markets to cover the associated costs and risks. Therefore, the chart above clearly shows a prevalence of bearish ETH futures bets, with its premium in the negative zone in October. Such a situation is unusual and typical of bear markets, reflecting the reluctance of professional traders to add leveraged long (bullish) positions.

Traders must also analyze Ether options markets to exclude externalities specific to the futures instrument.

ETH Options Traders Moved to Neutral Positioning

The 25% delta skew is a telltale sign of when market makers and arbitrage desks are overcharging for upside or downside protection.

Ether options 60 days 25% delta skew: Source: Laevitas

In bear markets, option investors give higher odds for falling prices, causing the bias indicator to rise above 10%. On the other hand, bullish markets tend to push the bias indicator below -10%, which means bearish puts are discounted.

The 60-day delta skew was above the 10% threshold until October 25, and signaling options traders were less inclined to offer downside protection. However, a significant change occurred over the next few days as whales and arbitrage offices began to assess a balanced risk for downward and upward price swings.

Liquidations show surprise move, but minimal buyer confidence

These two derived metrics suggest that Ether’s 27% price rise from Oct. 21 to Oct. 31 was unplanned, which explains the huge impact on liquidations. By comparison, a 25% rally in Ether from Aug. 4 to Aug. 14 caused $480 million in leveraged short (seller) liquidations, or about 40% less.

Currently, the prevailing sentiment is neutral according to ETH options and futures markets. Therefore, traders are likely to err on the side of caution, especially when whales and arbitrage desks have stood aside during such an impressive rally.

Until there is confirmation of the strength of the $1,500 support level and increased appetite among professional traders for leveraged buys, investors should not rush to conclude that the rally Ether is durable.