Cardano Tumbles 38.7% From Yearly Peak as RSI Hits Oversold Territory
Market Pulse
- ADA dropped by 19.4% this week, with monthly losses reaching 31.2%
- The RSI fell to 28.5 on the daily timeframe, marking the first reading in oversold territory since August
- The $0.45 support was tested as potential regulatory clarity is on the horizon after the new crypto bill is making progress
Cardano’s price dropped even more this week with a 19.4% decline. In total, it has lost 31.2% in the past 30 days. With a current price of $0.449, ADA is 38.7% down from its highest level this year. Bears kept the price from recovering. Neither Charles Hoskinson’s announcement on the Midnight update of the blockchain and the leak on the draft of the new Senate’s crypto bill managed to turn that around. The biggest question for traders today is whether ADA has reached the support line and it will bounce back from here or the negative sentiment will drive the price towards the $0.40 handle.
| Metric | Value |
|---|---|
| Asset | CARDANO (ADA) |
| Current Price | $0.45 |
| Weekly Performance | -19.39% |
| Monthly Performance | -31.24% |
| RSI (Relative Strength Index) | 28.5 |
| ADX (Average Directional Index) | 50.0 |
| MACD (MACD Level) | -0.05 |
| CCI (Commodity Channel Index, 20-period) | -143.37 |
Oversold RSI at 28.5 Matches August Capitulation Zone
The stochastic RSI also hovers across the oversold territory following a steep downward trajectory. The RSI is a momentum oscillator that measures whether an asset is overbought or oversold. The stochastic RSI, in turn, measures the RSI’s position with its own levels. As such, both serve different purposes in analyzing a market but paint very similar pictures in terms of establishing ADA’s oversold conditions leading into the weekend.
What is interesting to note is the speed at which momentum was lost, despite the favorable regulatory news. The oscillator went from a neutral 53 in early December to current oversold levels in only three weeks. This means that, for swing traders, the oversold bounce setup has merit, especially with the recent news out of the Senate potentially changing the tenor of the space. The last time daily RSI was at these levels, ADA rallied 47% in two weeks.
ADX Climbs to 49.96 – Mature Downtrend Nearing Exhaustion
When one examines the trend strength indicators, the ADX reading of 49.96 clearly shows that we are in a downtrend that is extremely old in terms of how long it has been going on. Also, downtrends are approaching levels at which they tend to reverse. A reading above 40 suggests that we are in a very strong trend to the downside, but readings around 50 in the ADX tend to signal exhaustion of the trend more than they do a continuation of the trend. In other words, the downside pressure has been so strong that we are getting far too stretched.
Simply put, when ADX reaches extreme levels and combines with overbought RSI conditions, it generates a high probability of price reversals. Considering that the last time the trend strength hit the highest since 2013, news about possible regulatory changes finally becoming obvious, one could assume that this bears giving up and selling their final shares. This requires contrarians to be on the lookout for a snap-back rally, while those who surf the trend need to wait for ADX to capitulate to confirm that their trade is coming to an end.
20-Day EMA at $0.54 Becomes First Major Resistance Target
Looking at the Relative Strength Index (RSI), little solace is found as ADA faces lower lows (bullish price action coupled with bearish RSI action). The daily RSI was dragged back below 30 again(not oversold), and continues to make lower lows. The current RSI sits at 38, clearly in bear country.
The most notable aspect of the daily close was the successful defense of the 50-day Exponential Moving Average, suggesting the downside could be limited. As of now, this EMA has held as support for 17 days in a row, and the previous 104-day support now turned resistance has continued to suppress advancing prices on each attempt to reclaim it. The longer-term moving average remains critical to overcome.
Critical Support at $0.45 Holds Despite Six Tests Since June
The support level ranging from $0.445 to $0.450 held strong once more as buyers stepped in to take Ripple (XRP) back above the key level of $0.4600. The recovery of XRP was repeated following the recent mini-crash on September 5, proving to the market that XRP bulls will continue to defend dips as a buying opportunity.
There is strong overhead resistance near the psychological $0.50 level and the 10-day EMA at $0.5004. The 20-day EMA at $0.5381 is the first resistance. A 20% move from the current levels is possible as XRP price action has stayed flat but for the most part, they have reached substantial resistance points. The December high at $0.693 is the measured move target if support holds.
The market structure still remains bearish, however, the formation of a higher low and the recent uptick in the OBV indicates that a recovery is underway. A breakout above the 20-day EMA would work to confirm a positive breakout.
Bulls Require Decisive Close Above $0.50 to Shift Momentum
In order to confirm a relief rally is indeed in play, bulls will need to prop up prices above $0.54, the 20-day exponential moving average. A successful retest there would open the gates up for further short covering toward the 50% Fibo at the 0.60 mark.
If the $0.445 support crumbles and bears take over on high trading volumes, the next major support zone to test rests around $0.40. This would equate to another 11% decline. This scenario gains credence in the case of regulatory news failing to meet investors’ expectations or the rest of the cryptocurrency market continuing to reel under bearish pressure in spite of Cardano’s favorable updates.
Based on the fact that the current trading range remained intact and that vigorous minor 1 and minor 2 degree relief rallies followed recent lows to $1.0050-1.0650 session highs, I was anticipating a choppy minor 2 recovery bounce tomorrow to $1.000-1.045 ahead of a subsequent overdue retest with the lows.
