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Cardano looks to be sitting in extremely oversold conditions, possibly leading to a bullish impulse. Several technical indicators favor the optimistic outlook, although support looks weak.
Cardano Appears Ready to Rebound
Cardano appears to have reached a crucial support area while it remains stuck in a six-month downtrend.
The Layer 1 blockchain’s ADA token has lost significant ground since it reached an all-time high of $3.10 in September 2021. While other Layer 1 tokens like Terra’s LUNA have recently regained momentum, Cardano continues trending downwards as it sits 75% short of its peak. The downward pressure seen over the last few months has brought the asset to a make-or-break point.
Cardano’s price action appears to be contained within a descending parallel channel that developed on its three-day chart in September 2021. Every time ADA has risen to this technical formation’s upper boundary since then, the uptrend has reached exhaustion, leading the price to retrace to the pattern’s middle or lower edge. From this point, ADA tends to rebound, which is consistent with the characteristics of a parallel channel.
After getting rejected from the channel’s middle trendline in late February, Cardano retraced to the pattern’s lower boundary, where it’s currently trading. If this support level can hold as it has done over the past six months, ADA could rebound to the channel’s middle or upper edge. These resistance levels sit at $0.87 and $1.
The Tom DeMark (TD) Sequential indicator adds credence to the optimistic outlook as it is currently presenting a buy signal on ADA’s three-day chart. The bullish formation developed as red nine candlestick, which is indicative of a one to four candlestick upswing.
Although the odds appear to favor the bulls, the $0.75 support level is crucial. Any sign of weakness around this price point could induce further panic among market participants, leading to a sell-off. A spike in selling pressure around such a vital area of support could push ADA toward $0.50.
Disclosure: At the time of writing, the author of this piece owned BTC and ETH.
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