Technical analysis suggests that a recent uptrend in Aave (AAVE) price is showing signs of exhaustion based on the early development of a classic bearish reversal pattern.
Is AAVE heading towards $70?
Called a “rising wedge,” the pattern appears when price rises within a range defined by two converging, ascending trendlines. When this occurs, trading volume decreases, indicating a lack of conviction among traders. when additional purchases are needed to continue the upward momentum.
Therefore, Falling wedges usually lead to a bearish breakout where the price breaks below the lower trendline of the pattern and falls as far as the maximum distance between the upper and lower trendline of the wedge.
AAVE has painted a similar pattern amid its strong move higher from nearly $61.50 on May 12 to above $93.50 on May 17. If a sustained breakout occurs, AAVE will drop to at least $27, which is the maximum height of the wedge, as shown in the graph below.
This puts AAVE on track at around $70, down 25% from the current price of $89.20.
Bearish winds persist
The bearish setup for AAVE comes on the back of the current strong correlation of the cryptocurrency market with the US stock markets.
The daily correlation coefficient between the AAVE and the tech-heavy Nasdaq 100 stood at 0.91 as of May 17, showing that both markets have moved in almost perfect tandem.
The aggressive monetary policy of the Federal Reserve, which includes the recent rise of 0.5% in reference interest rates, is at the center of this synchronous trend, in the face of rising inflation.
Fears of further selling remain as Wall Street veterans warn of an impending recession.
According to Lloyd Blankfein, former CEO of Goldman Sachs, rising interest rates, coupled with supply chain issues, further lockdowns in China and the conflict in Ukraine, could keep inflation high. The persistent combination of these factors is likely to cause the Federal Reserve to maintain its aggressive policy and that the rebound effect is a reduction in economic growth in the United States.
Similarly, Michael J. Wilson, Chief US Equity Strategist and CIO at Morgan Stanley, reiterated the same catalysts while predicting a 15% decline in the benchmark S&P 500 index. As a result of its correlation with the cryptocurrency, AAVE is also at risk of similar bearish moves heading into 2022.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investments and operations involve risk, so you should do your own research when making a decision.
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