Cardano (ADA) trimmed a large portion of the weekly losses incurred during this week’s cryptocurrency market crash.
ADA price hit an intraday high of $0.60 on May 13, one day after rebounding from its weekly low of $0.38, marking a 58% rally.
The huge pullback to the upside came in the wake of similar price action in the cryptocurrency market, with major cryptocurrencies Bitcoin (BTC) and Ether (ETH) rallying 23% and 25.75% from yesterday’s lows.
But ADA’s strong recovery does not promise a prolonged bullish continuation, at least according to the three factors discussed below.
The stock market crash is far from over
First of all, the price action of Cardano and similar crypto assets has gone hand in hand with US stocks, especially tech stocks.
Specifically, the correlation coefficient between ADA and the tech-heavy Nasdaq Composite was 0.93 on May 13, meaning that any major move in stocks would likely pull Cardano in the same direction.
Besides, The chances of the Nasdaq making a strong recovery are currently slim as analysts highlight the overblown valuations of big tech stocks and their likelihood of falling further in a higher interest rate environment.
“The [hacha] it hangs, rather, on high-growth technology companies,” says Richard Waters, West Coast editor of the Financial Times, adding:
“This is where valuations stretched the most and where the market has the most trouble finding its bottom.”
Quite simply, Cardano’s persistent positive correlation with Nasdaq could lead to more sharp declines in the ADA market, at least for now.
ADA’s “Missing Fifth Wave”
Second, another hint of a potential Cardano price decline comes from a technical structure highlighted by Capo of Crypto, an independent market analyst.
The analyst pseudonym points out that ADA could fall to the $0.30 to $0.35 range next, given its chance of painting the fifth and final wave of a bearish Elliott Wave setup, as shown in the chart below.
The target range coincides with the January 2021 support zone that preceded an 850% bull run.
Descending channel breakout
In third place, Cardano has broken below its multi-month descending channel in another sign of weakness.
ADA has been trending lower within a range defined by two parallel descending trend lines, underscoring the current strategy of traders to buy near the lower trend line and sell towards the upper trend line.
But on May 12, the ADA/USD pair broke below the lower trend line near $0.568, showing that traders ignored the buying opportunity.
Instead, the buyers appeared near the $0.378 level to accumulate ADA, which led to the price rebound, as discussed above. Nevertheless, the trading volume supporting the recovery move was lower than during the sell-off, indicating a weakening of the rebound trend.
Simultaneously, the pullback move to the upside showed signs of further weakness after testing the bottom of the descending channel as resistance, a way to confirm the breakout. If the bulls fail to convert the price ceiling into support, the probability of ADA continuing its downtrend will be much higher.
Conversely, a decisive move above the lower trendline of the channel could see ADA test its upper trendline near $1.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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