Solana (SOL) appears poised to make its first die cross this week, raising fears of continued sales going into February.
The real threat of sale
In particular, the 50-day exponential moving average of SOL (50-day EMA; red wave) will eventually close below the 200-day moving average (blue wave), indicating a bearish crossover, called death cross , which usually encourages traders to sell.
SOL/USD daily chart with 50-200 EMA death crossover. Source: Trading View
The threat emerges when SOL appears to expire in January with a loss of nearly 50% – as of the last day of the month, Solana’s token has fallen more than 2.50% to nearly $91, down from around $180 initially. Meanwhile, the drivers for lower solar energy prices have not changed much.
Cryptocurrencies plummeted this month as traders tried to gauge how quickly the Federal Reserve raised its benchmark rates from near zero to stem rising inflation and a tightening labor market. As a result, Solana lost half of its market value in January from $55.19 billion to $28.79 billion; That is, after the end of 2021, with a profit of 11,144%.
This has led some financial experts to anticipate a future “crypto winter,” a term referring to bear cycles in the cryptocurrency market, such as in 2018, when the total market capitalization of digital assets fell by more than 80%.
Currently, the temporary bullish outlook for SOL depends on its ability to hold above $83, which is the current support level. A break below the specified price level could lead to the Solana token of the next withdrawal option being found no later than $65, as shown in the chart below.
Daily SOL/USD price chart with intermediate support targets. Source: Trading View
Both levels of support helped send SOL/USD to an all-time high of more than $260 last year.
Philip Ganway, Partner at Blockasset.co, remains bullish on Solana in the long-run, citing its rapid growth in the decentralized finance (DeFi) and non-fungible tokens (NFT) segments, which in turn has led to increased demand for SUN. However, the analyst noted that SOL’s quick recovery in the short term depends on the performance of the broader crypto ecosystem.
“For Solana, it is clear that maintaining strong support in the $65-$85 range is the main trend for the week, keeping the long-term focus on testing all-time highs near $260,” Janway said.
There is no prior data showing how SOL traders will react to the death cross, as it will be the first bearish Solana EMA cross in 50-200 days so far. But given that people who trade SOL have been trading Bitcoin (BTC) in recent years, you can see that the death crosses don’t bother them that much.
For example, the 50-200-day EMA crossover seen in the bitcoin market in June 2021 fell to $29,000. But a month later, the price of BTC rose sharply, eventually reaching a high of $69,000 in early November 2021.
BTC/USD daily price chart with recent crossovers. Source: Trading View
Similarly, the death toll in the S&P 500 (SPX) has crossed its value over the past decade due to false bearish warnings. For example, the recent bearish crosses between the SPX 50-day EMA and the 200-day EMA, in December 2018 and March 2020, led to a bottom followed by a strong price rally.
Standard & Poor’s 500 daily with recent death crosses. Source: Trading View
This increases the possibility that the SOL death cross will fall in the upcoming sessions, followed by a bullish reversal. Meanwhile, the Solana token can track previous support/resistance levels for a possible rebound to the 200-day moving average.
Daily SOL/USD price chart with jumping scenarios. Source: Trading View
Additional signals for a bullish bounce also come from the Relative Strength Index (RSI) at SOL price, which is a classic buy signal.