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Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be considered investment advice
LUNA’s ascending wedge has been forming for over a month and it is now, threatening a potential 46% sell-off. Traders must be cautious of a close below the confluence of the 4-hour 200-SMA (green) and 23.6% Fibonacci level, one which could trigger a bearish outcome. Meanwhile, bulls can aim for an early cut-off at the 38.2% Fibonacci level – A zone that held up a reliable support level in October.
At the time of writing, LUNA was trading at $51.5, up by 4.9% over the last 24 hours.
LUNA 4-hour Chart
Source: LUNA/USD, TradingView
Three higher highs set up at $41.5, $49.5, and $61, along with three higher lows at $27.2, $41.3, and $48.4, outlined an ascending wedge on LUNA’s 4-hour chart. Based on the highest peak and the lowest valley within the bearish pattern, LUNA eyed a 47% drawdown from the breakout point. Should LUNA forego its streak of higher lows and weaken below the 200-SMA (green) and 23.6% Fibonacci level, sellers can drive the price all the way to $23.52.
Bulls can counterpunch immediately at the 38.2% Fibonacci level- A zone that enabled a reversal following a double top at $49 in October.
On the flip side, an upwards breakout can be possible if LUNA registers an immediate close above $55, backed by strong volumes. Such an outcome would set LUNA on course for $81.
Reasoning
The 4-hour RSI traded within a steady down channel, forming several bearish divergences with respect to LUNA’s price action. Such signals are commonly observed before a retracement takes place.
Having said that, LUNA could extend its wedge over the near term as the MACD and DMI were still within favorable positions.
Conclusions
LUNA can consolidate close to $55 as the MACD and DMI shift to bearish positions. Once sellers respond to such cues, LUNA would break south of its wedge and set up a potential 47% sell-off.
Traders can go short once LUNA closes below the confluence of its 200-SMA (green) and 23.6% Fibonacci level and set take-profits at $23.5.
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