U.S. Stocks

More bearish cues for SOL comes from a bull flag setup that's now breaking to the downside.

A rebound move witnessed in the Solana (SOL) market this weekend exhausted midway as its price dropped below the $90 level from a high of $96 on Feb. 21. In doing so, SOL price technicals are now risking a classic bearish reversal setup.

Solana price risks dropping to $60

Dubbed head-and-shoulders (H&S), the technical pattern emerges when the price forms three peaks in a row atop a common support level (called a neckline). As it typically turns out, the pattern's middle peak, called a "head," comes longer than the other two peaks, called theleft and right shoulders, which come to be of similar heights. 

The H&S pattern tends to send the prices lower—at length equal to the maximum distance between the head and the neckline—once they decisively break below its neckline. As a result, Solana, which has been forming a similar technical structure lately, risks sliding toward $60, or almost 30%.

Interestingly, the H&S downside target, near $60, was also instrumental as support in August 2021, right before Solana's price rally to its record high above $250.

Bear flag increases downside risks

The risks of Solana undergoing a period of another major selloff have been also increasing due to a technical pattern called a "bear flag."

Related: Bottom ahead? Solana paints its first 'death cross' as SOL losses 50% in January

Notably, SOL's price has been breaking out of the bearish continuation setup. In doing so, it now risks falling by as much as the length of its previous downtrend, called "flagpole," when measured from the point of breakout, as shown in the chart below.

As a result, SOL's bear flag breakout risks sending its price to $60 or lower, like the H&S pattern.

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.

Recently, death crosses between the 50-day and 200-day exponential moving averages have acted as a reliable predictors of bottoms.

Solana (SOL) looks poised to paint its first “death cross” this week, raising fears that its ongoing selloff would continue further into February.

Real selloff threat

Notably, the SOL price's 50-day exponential moving average (50-day EMA; the red wave) will eventually close below its 200-day EMA (the blue wave), signaling a bearish crossover, called a death cross, that typically prompts traders to sell.

The threat surfaces as SOL looks to close January at nearly a 50% loss — as of the month's final day, the Solana token was down by over 2.50% to nearly $91, compared to almost $180 at the start. Meanwhile, the catalysts behind SOL's price crash remain pretty much intact.

Crypto-assets have fallen this month as traders have attempted to assess how fast the Federal Reserve would increase its benchmark rates from near-zero levels to tame booming inflation and tighter jobs market. Solana, as a result, has wiped half its market valuation in January from $55.19 billion to $28.79 billion; that is, after it closed 2021 at a whopping 11,144% profit.

That has got some financial experts to expect a "crypto winter" ahead, a term referring to concerning bearish cycles in the cryptocurrency market, such as the one seen during 2018 wherein digital assets' combined market cap fell by more than 80%.

It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens.

— David Marcus - dmarcus.eth (@davidmarcus) January 24, 2022

As of now, SOL's interim bullish outlook hangs over its possibility to hold above $83, its current support level. A break below the said price floor could have the Solana token find its next pullback opportunity not until $65, as shown in the chart below.

Both support levels were instrumental in sending the SOL/USD pair to its record high above $260 last year.

Philip Gunwhy, partner at Blockasset.co, remained long-term bullish on Solana, citing its exponential growth in the decentralized finance (DeFi) and nonfungible token (NFT) sectors that, in turn, tends to boost SOL's demand. However, the analyst noted that SOL's swift rebound in the short term depends on the performance of the broader crypto ecosystem.

"For Solana, maintaining solid support at $65–$85 area is undoubtedly the primary focus for the week while maintaining a longer-term focus to retest its All-Time High around $260," Gunwhy said.

Rebound scenario

No previous data shows how SOL traders react to a death cross since it will be Solana's first 50–200-day EMA bearish crossover to date. But considering that people who trade SOL have been trading Bitcoin (BTC) over the recent years, one can notice that death crosses bother them very little.

For instance, a 50–200-day EMA crossover, witnessed in the Bitcoin market in June 2021, followed a drop towards $29,000. But a month later, the BTC price bounced back strongly, eventually reaching its all-time high of $69,000 in early Nov. 2021.

Similarly, over the past decade, death crosses in the S&P 500 (SPX) have lost their significance due to false bearish alarms. For instance, the last two bearish crossovers between the SPX's 50-day EMA and 200-day EMA — in December 2018 and March 2020 — led to bottom formations, followed by strong price rebounds.

That raises the possibility that SOL's death cross would have its price bottom out in the coming sessions, followed by a bullish reversal. In doing so, the Solana token may eye previous support/resistance levels for a potential rebound move towards its 200-day EMA.

More cues for a bullish rebound also come from the SOL price's oversold relative strength index (RSI), a classic buy signal.

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.