Analyzing Solana’s Surge: Are Bearish Signals Foretelling a 40% Plunge?

• Solana (SOL) has witnessed an impressive 50% surge in its price, reaching $76.35 as of December 19 from a recent low of $51 just a month ago.
• However, concerns arise as the bullish momentum seems to lack the necessary strength for a sustained uptrend.

Solana (SOL) has experienced a remarkable surge, catapulting its price to around $76.35 as of December 19, marking a substantial 50% increase from its local low of $51 just a month ago. However, a closer look at the technical indicators reveals potential storm clouds on the horizon.

Despite the impressive rally, the underlying momentum needed to sustain this bullish trend appears to be lacking. The Relative Strength Index (RSI) on SOL’s three-day chart has retreated from a high of 90 to approximately 73, forming lower highs even as the price achieves higher highs. This bearish divergence raises concerns about the sustainability of the current upward trajectory.

A corresponding divergence is evident between SOL’s ascending price and declining three-day trading volumes. This discrepancy serves as an early warning signal, suggesting that the strength of the bullish trend may be waning, paving the way for an imminent reversal.

The current stabilization of SOL’s price around $73, aligning with its 0.236 Fibonacci retracement line, adds another layer to the technical analysis. This level had previously acted as support in Q1 2022. If the bearish signals materialize, the target price for a potential correction could be a significant 40% drop, reaching the 50-3D Exponential Moving Average (EMA) near $42 by January 2024.

Despite the potential downturn, independent analyst Cold Blooded Shiller views the bearish divergence as a buying opportunity rather than an indication of a macro crypto top. He suggests that these signals hint at a chance for investors to acquire assets at more favorable prices, emphasizing that the overall trend remains upward.

Shiller notes, “The trends are still up, we still want to buy, we don’t really care about the short side as much, and we’re getting some signs that we may be fortunate to get some cheaper coins across the market.”

The Solana market’s bearish sentiment might find resolution around the 50-3D EMA, potentially followed by a rebound in Q1 2024. Historical data indicates that Solana’s market corrections often find support near an ascending trendline, suggesting that a move toward this trendline around $40 could reignite bullish sentiment. Additionally, traders may look to buy SOL near the 0.786 Fibonacci retracement line, approximately at $55, which has previously served as a resistance-turned-support level.