DeFi token AAVE faces major correction after soaring 100% in a month

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The price of Aave (AAVE) has more than dou­bled in a month, but its bull­ish momen­tum could be reach­ing a point of exhaustion.

AAVE price tests key inflection level

Notably, AAVE has surged by over 103% after bot­tom­ing out local­ly at $45.60 on June 18, hit­ting almost $95.50 this July 15. Nev­er­the­less, the token’s sharp upside retrace­ment move has brought its price clos­er to the lev­el that trig­gered equal­ly sharp pull­backs since ear­ly June.

In oth­er words, AAVE has been test­ing an ascend­ing trend­line resis­tance that con­sti­tutes a “bear flag,” a bear­ish con­tin­u­a­tion pat­tern. For exam­ple, the trend­line’s pre­vi­ous test on July 9 end­ed up in a 20% down­side move. Sim­i­lar­ly, a sim­i­lar attempt on June 24 pushed AAVE price low­er by near­ly 30%.

AAVE/USD dai­ly price chart. Source: TradingView

As a result of this dis­tri­b­u­tion behav­ior, AAVE’s ongo­ing attempt to break above the flag trend­line could meet with extreme sell­ing pres­sure. A pull­back could then see AAVE/USD retest the flag’s low­er trend­line near $67.75 as its down­side tar­get by Sep­tem­ber, down almost 30% from July 15’s price. 

Mean­while, the $76.30-level serves as inter­im sup­port, pri­mar­i­ly due to its his­to­ry as a price floor in May that pre­ced­ed a 60% rebound move.

Bear flag breakdown scenario

As a rule of tech­ni­cal analy­sis, the break­down below $67.75 could see AAVE plung­ing by as much as the height of the “flag­pole” that formed before the bear flag. That would have the token eye $35.50 as its bear flag prof­it tar­get, down over 60% from the cur­rent price.

AAVE/USD dai­ly price chart fea­tur­ing ‘bear flag’ break­down set­up. Source: TradingView

Con­verse­ly, a con­tin­ued rebound move above the bear flag’s upper trend­line would inval­i­date the break­down set­up. In this case, the bull­ish tar­get for AAVE will like­ly be the $115–$120 range that served as resis­tance in June.

GHO stablecoin

More than half of the gains dur­ing AAVE’s price ral­ly have come after its pro­pos­al to launch a U.S. dol­lar-pegged sta­ble­coin called GHO.

Relat­ed: UNI, MATIC and AAVE surge after Bit­coin price bounces back above $20K

On July 7, Aave Com­pa­nies, a cen­tral­ized enti­ty that backs Aave’s lend­ing pro­to­col, request­ed its com­mu­ni­ty to vote on their “over­col­lat­er­al­ized” sta­ble­coin pro­pos­al. AAVE’s price surged by over 53% after­ward, led by spec­u­la­tions that GHO would boost the DeFi token’s adoption.

How­ev­er, any fur­ther gains would risk push­ing AAVE into “over­bought” ter­ri­to­ry with its dai­ly rel­a­tive strength index (RSI) tread­ing just five points below 70 as of July 15

AAVE/USD dai­ly rel­a­tive strength index. Source: TradingView

Ris­ing above the 70 thresh­old could push AAVE’s price into a cor­rec­tion phase, like­ly trig­ger­ing the bear flag sce­nario as dis­cussed above. 

The views and opin­ions expressed here are sole­ly those of the author and do not nec­es­sar­i­ly reflect the views of Cointelegraph.com. Every invest­ment and trad­ing move involves risk, you should con­duct your own research when mak­ing a decision. 



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