Litecoin and Ethereum seem to have led the cryptocurrency market rally this week, with the former rising 55% since February 8th while Ethereum is up 41% in the same period.

Although there is more of a reason to be bullish now than in January, price action is reaching a critical test of moving averages and resistance levels.

Twelve days ago, Coin Rivet analysed the technical chart of Litecoin against Bitcoin, and it subsequently broke out of the 0.01BTC level of resistance, rising 37% since the time of writing.

Breakout or rejection?

On Wednesday morning, Litecoin managed to test the 200 exponential moving average (EMA) on the daily chart for the first time since May 15th 2018.

On that day last summer, cryptocurrency traders still had reason to be cautiously bullish. Bitcoin was around the $8,500 level while the entire market cap for cryptocurrencies was at a healthy $410 billion.

But this touch, and subsequent rejection, of the 200 EMA saw entry into a new phase of the bear market, which is still ongoing nine months later. Litecoin fell 84% from $147 to $22 in that time.

$LTC testing the 200EMA on the daily. The last time it touched the 200 was on May 15th, Litecoin subsequently fell 84% from from $147 to $22. Bullish if we break out, capitulation incoming if price gets rejected here.$crypto $LTCUSD $BTCUSD pic.twitter.com/25FNMZ77zQ — Oliver Knight (@KnightCoinRivet) February 20, 2019

The entire cryptocurrency market cap now lies at around $135 billion, with much of the returns gained in the hype-driven bull market in 2017 being wiped out by a gruelling and painful bear market.

Litecoin is currently at a pivotal level. If it can break out of the 200 EMA with conviction, it could be an initial signal of a reversal in the markets, reiterating those who have called an official bottoming in price.

However, if like last time Litecoin sees a rejection from this level, we could well see the markets break yearly lows and enter a capitulation phase, which usually acts as a precursor to a bull market cycle.

It’s worth noting that if Litecoin reacts in the same way as it did in May, an 84% move to the downside, the price of Litecoin will stand around $7.75.

A frightening amount of bullish sentiment?

Trawling through social media over the past few weeks, you would think that Bitcoin was about to eclipse its $20,000 all-time high. Every man and his dog are suddenly unashamedly bullish, but why?

Bloomberg seems to think the recent rally is due to JP Morgan’s announcement of JPM Coin, while many on Twitter believe it’s the release of Binance’s new decentralised exchange. Some are even suggesting that Litecoin’s new logo has prompted its recent performance.

Needless to say, there has been no fundamental change in the cryptocurrency space over the past month. The Bitcoin ETF application was withdrawn by CBOE, the SEC and FBI have both issued warnings to investors about ICOs, and regulators across the world are preparing to clamp down on this digital asset class.

$ETH | Diagonal resistance rekt af Critical fib + horizontal levels at 0.054, 0.072 & 0.086 pic.twitter.com/Wr5w4y99co — Lai Coi Zissou™ (@ZeusZissou) February 18, 2019

The latest spike in bullish sentiment could be attributed to a sheer lack of positivity since the breakdown from $6,150 in November.

The community have been so devoid of anything positive, as is usually the theme of a bear market, so much so that now they are clutching at straws.

If Bitcoin can break out above $4,050 and if Litecoin can break through the 200 EMA with conviction, then a bullish scenario could be argued. But for now, the cryptocurrency market is still being commanded by the bear, and the bull doesn’t look like it will appear any time soon.