Lido DAO (LDO) price fell sharply a day after its key momentum oscillator crossed into “overbought” territory.
LDO undergoes an overbought correction
The price of LDO crashed to $1.04 on July 16 from $1.32 on July 15, which is a decline of more than 20%. The token’s strong move lower was based on multiple bearish technical indicators, including its Relative Strength Index (RSI) and its 100-day EMA.
LDO’s latest crash came after it surged more than 150% in just two weeks, a move that simultaneously pushed its daily RSI above 70 on July 15, thus making it overbought.
An overbought RSI indicates that the rally may be coming to an end and is setting up for a short-term pullback.
Meanwhile, further downside signals for the Lido DAO token came from its 100-day EMA (the black wave on the chart above) near $1.30, which limited LDO from extending its 150% price rally.
In its early stages, the price action looked similar to the LDO correction in April 2022, after its RSI crossed above 70 for the first time ever. In particular, the Lido DAO token had suffered a price drop of more than 90% to reach $0.39, its all-time low, in mid-June 2022.
This raises the potential for LDO to repeat the April-June 2022 correction, albeit with no exact bottom in sight. That said, the token’s interim downside target appears to be near its 50-day EMA (the red wave) at $0.90, down 20% from the current price.
Secondly, A break below the 50 day EMA would risk the LDO crashing around $0.75, which coincides with the 0.618 Fib line of the Fibonacci retracement chart plotted from the $0.39 low to $0.39 high. $1.31.
Ethereum 2.0 is expected to arrive in September
On July 15, Ethereum developers confirmed that their network’s long-awaited transition to proof-of-stake from proof-of-work, dubbed “the merge” or “Ethereum 2.0,” would tentatively occur on September 19.
LDO was up nearly 25% on the day of the announcement due to its close ties to Ethereum.
Specific, LDO serves as the governance token on Lido, a liquid staking platform that has locked more than 4.13 million ETH (worth about $5 billion) in the official Merge smart contract on behalf of its users.
Following the announcement of Ethereum, the number of Ether deposited into Merge smart contracts via Lido increased.
Since Lido is currently the largest provider by total value staked, a successful launch of Merge could bring more users to Lido, which, in turn, could drive demand for LDO tokens.
Therefore, A technical correction in LDO price could follow with a bounce back towards the 100-day EMA if Ethereum’s plans to become a proof-of-stake chain come through in time.
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