Solana (SOL) price rose about 75% two months after hitting a local low near $25.75, but the token’s stellar upward movement is at risk of being wiped out entirely due to an ominous bearish technical indicator.
A large SOL crash rack surface is surfacing
The pattern, also known as “head-and-shoulders (H&S)”, appears when the price forms three consecutive highs atop a common resistance level (called the neckline). In particular, the middle peak (head) rises higher than the other two shoulders, which are almost the same height.
Head and shoulders patterns disappear after the price breaks below their neckline. In doing so, the price drops by as much as the distance between the top of the head and the neckline, measured from the breakout point, according to a rule of technical analysis.
It appears that SOL has formed a similar bearish setup on its longer time frame charts.
On the weekly chart, the token forms the right shoulder of the overall pattern, suggesting a correction toward the neckline at $27 in the second half of 2022. Meanwhile, a breakdown below $27 could result in an extended correction toward $2.80.
In other words, a 95% price drop by the end of 2022 or early 2023, a setup also projected by the pseudonymous analyst ‘PROFIT BLUE’.
— PROFIT BLUE (@profit8lue) August 14, 2022
Is this a bear market rally?
Solana’s extremely uncanny bearish stance appears because it closely aligns with trends in risky markets, primarily driven by the Federal Reserve’s aggressive response to inflationary pressures.
For example, SOL closed the week ending August 14 with a gain of 10.5%, comparable to Bitcoin (BTC) and the benchmark S&P 500 index. These markets reacted to a less-than-expected US consumer price index (CPI), increasing the likelihood that the Fed would slow the pace of its rate hikes.
But many analysts have warned of these ongoing price rallies in the risky corners of the market, citing historical evidence of similar bear market bounces. So SOL’s 75% rebound risks turn into a fake-out if the correlation with riskier assets remains positive.
From a fundamental perspective, Solana is also facing extreme FUD due to the recurring network outages and rumors of centralization. However, the project’s financiers have introduced new upgrades to solve these problems, as Cointelegraph discussed here.
But even then, a 95% price crash is too “wild,” suggests market analyst IncomeSharks, who says it would mean Solana is a Terra-esque carpet-pull project.
Related: Fallout of Crypto Contagion Is Decreasing, But There’s No Market Reversal Yet
In the next major drop, SOL could explore bounce opportunities near a multi-year rising support trendline, as shown below.
In other words, SOL’s bearish continuation could last until the price hits $20, more than 55% lower than today’s price.
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