The ether-US dollar exchange rate fell to a six-week low below $250 today as the mood in the markets soured and fears of a broader exchange crackdown in China were seemingly confirmed.

However, while today's price decline appears to be a response to the news, ether's particular drop should not be a surprise for traders – the move was in line with the bearish technicals discussed earlier this week. As we've covered previously, China's decision to ban ICOs hurt ether the most as the vast majority of ICOs are launching tokens issued on top of the ethereum blockchain.

When the news hit the wires last Friday, it lead to a bout of panic selling in cryptocurrencies. However, as the rumors went unconfirmed, ether prices moved higher to $316 levels on the back of short covering.

The lack of fresh buying interest then made way for a deeper correction to $256 levels.

All in all, however, it's perhaps best to view this as nothing more than a healthy technical correction following a rally of epic proportions. In one year, the value of all blockchain-based cryptocurrencies has increased by a whopping 1,450 percent.

Ether clocked record highs above $400 this summer, and at press time, it's still trading at $266 levels, which means only 50 percent of the rally from the July low of $136 has been undone. Week-on-week, ether is down 20.6%. On a monthly basis, the cryptocurrency is down 11%.

Last but not the least, the technical factors are responsible for the sell-off as well.

The ongoing technical correction would add credence to the stellar rally in ether and other cryptocurrencies. In a way, the correction is a litmus test as traders who missed the bus earlier can enter the market now.

Increased dip demand would signal that heightened interest in cryptocurrencies is for real.

Daily chart

The first sign that the technical correction has ended would be a break above the descending trend line (dotted green line). A more reliable signal would be a break above $316.73 (September 12 high) as it would mark the violation of the falling tops or lower highs pattern.

Of late volumes have surged on negative days (on September 4 and September 8). Sharp rise in volumes on positive days would increase the odds of trend reversal.

4-hour chart

The chart above shows head and shoulders pattern. Prices currently trade below the neckline support of $266.

The "head and shoulders" is a reversal pattern that, when formed, signals an asset (in this case ether) is likely to move against the previous trend. The H&S neckline (line drawn from the left shoulder bottom and right shoulder bottom) support has been breached.

An end of the day close below $266 would confirm bullish-to-bearish trend reversal and could open doors for a much deeper sell-off to $177 (July 29 low).

As per the measured height method (difference between head and shoulder peak ($395) and neckline support ($266) is subtracted from the neckline support), ether could drop to $137 on confirmation of the head and shoulders breakdown.

Interestingly, the target as per the measured height method almost coincides with the July low of $136. However, sell-off of such epic proportions appears unlikely as of now.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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