Stellar's potential 40% decline explained
In recent weeks, the price of Stellar (XLM) has remained close to its highs, with the current trading price hovering around $0.47. However, a closer look at the technical analysis reveals potential risks for XLM investors, primarily the threat of a significant price correction of up to 40% or more.
One of the primary concerns is the heavy leverage risk and potential liquidation cascade. According to data from Bitget, there is an unusually large volume of leveraged long positions concentrated below $0.40, with long positions amounting to around $79.8 million, compared to just $42.1 million in shorts. This imbalance could lead to a cascade of forced liquidations if the price falls below this level, flooding the market with sell orders and accelerating the price drop.
Another concern is the stalling momentum and bearish technical signals. After a sharp rally that saw a 103% increase over the past month, the price momentum has weakened. Daily candles have mostly shown indecisive Doji patterns, and a bearish divergence in the Relative Strength Index (RSI) has been observed. The RSI has formed lower highs while the price stays near highs, a pattern that previously preceded a 40% price crash in December 2024.
Furthermore, the price has recently dipped below crucial on-chain and technical support at $0.40, signaling bears gaining control. The next possible support zone to watch is around $0.32, reflecting Fibonacci retracement levels, which implies further downside risk if $0.40 fails to hold.
Moreover, Stellar often moves in tandem with Ripple (XRP) due to shared founding links, and recent declines in XRP prices have influenced XLM’s drop as well. The tandem drops have erased recent gains and caused large losses among traders.
In summary, the risk profile for XLM investors includes a dangerous mix of heavy leverage concentrated below current prices, weakening momentum with bearish divergences, and a critical support zone under threat at $0.40. These factors could cascade into a sharp price correction roughly in the range of 30-40% or more unless the price stabilizes and reclaims key levels.
Investors are advised to exercise caution in the coming weeks, closely monitoring the price movements and technical indicators of Stellar (XLM).
[1] https://www.bitget.com/en/insights/market-analysis/xlm [2] https://www.tradingview.com/chart/XLMUSD/1D?extendedChart=true [3] https://www.tradingview.com/chart/XLMUSD/1D/ [4] https://www.coindesk.com/business/2021/07/15/ripple-and-stellar-drop-as-crypto-markets-slip-amid-us-regulatory-uncertainties/
- The heavy leverage and concentration of long positions below the current trading price of XLM, along with the stalled momentum and bearish technical signals, might pose a significant risk for investors involved in financing and investing in Stellar, as these factors could lead to a price correction of up to 40% or more.
- Given the technical analysis, technology-driven indicators such as the Relative Strength Index (RSI) and recent dips below support levels in XLM, it's essential for investors to be cautious when considering financing and investing in Stellar, especially as the price of Ripple (XRP), which often moves in tandem with XLM, has also been decline, potentially influencing XLM’s drops.
