As we reported on Kriptokoin.com, altcoin prices in particular have seen sharp rebounds during bear markets in the past, with many of them turning out to be bull traps. ADA’s 45 percent rebound in two days could trap the bulls. Here are the details…
Will the altcoin continue its recovery trend?
Cardano (ADA) price rose from $0.48 on May 30 to $0.68 on May 31. In other words, the altcoin experienced a rally of about 45 percent in less than 48 hours. However, ADA/USD failed to extend its rally higher and has dropped nearly 13.75 percent from its weekly high. Cardano’s price pulled back sharply on June 1, giving up some of the gains from the previous two days. The question now is whether the ADA/USD pair can extend its recovery trend, especially as it is trading almost 80 percent below its September 2021 high of $3.16.
Interestingly, the downward pullback started after the Altcoin project tested its 50-day exponential moving average (50-days EMA) as resistance. Also, the pair moved lower among riskier assets, including Bitcoin (BTC) and the S&P 500, with broader correction sentiment. According to Digital Trend, a financial analysis contributor at SeekingAlpha, the altcoin has seen sharp price rebounds that have turned into bull traps in the past and risks further price corrections. Your Digital Trend quote goes like this:
In March, we saw ADA go from under $0.80 to over $1.24 in a matter of weeks. This, to me, looks like another fake ascension.
A break from these levels could result in a 23 percent increase
A few key factors also support the bearish outlook. On June 1, the Federal Reserve will begin to loosen its $9 trillion asset portfolio, possibly creating more headwinds for risky assets including Cardano. Dan Eye, chief investment officer of Fort Pitt Capital Group, told Market Watch:
I don’t think we know yet the effects of QT (quantitative tightening), particularly this weakening of the balance sheet. Since we haven’t done much in history, removing liquidity from the market will affect multiples in valuations to some extent.
From a technical point of view, Cardano may continue its recovery trend in June due to the bullish continuation pattern. ADA is consolidating inside the chart, which looks like a “bullish pennant” confirmed by the price fluctuating within a triangle structure after a major upside move called the “flagpole”. As a rule, a bull pennant dissolves after the price breaks above the upper trendline and rises as high as the flagpole. In other words, a target of $0.77 in June is up more than 25 percent from the price of June 1. ADA is plotting a similar bullish pennant setup against Bitcoin, raising the possibility of a bullish reversal for the ADA/BTC pair in June. As a result, the decisive break of ADA/BTC above the pennant’s upper trendline could result in a 23 percent increase from June 1’s price to 0.00002355.
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