Shiba Inu (SHIB) may see a decline of almost 25% to 35% on fear that the excessive rise in prices of the cryptocurrency in October has left it overvalued, a key indicator shows.
Called the Relative Strength Index (RSI), the indicator measures the magnitude of an instrument’s recent price changes to assess its oversold and overbought conditions. The result can be anywhere between the number 0 and 100, with a reading below 30 showing the instrument’s oversold and above 70 showing its overbought status.
SHIB crossed above 70 on October 3 and peaked around 94 three days later. Ideally, your overbought reading could have resulted in a price correction. Pero SHIB continued its rally as the monthly session progressed, eventually rising more than 574% to its five-month high at $ 0.00004860 on October 26.
Bearish divergence
On the other hand, the Shiba Inu RSI was down, thus creating a wide divergence between price and SHIB momentum. That reflected an underlying weakness in the cryptocurrency’s ongoing uptrend, increasing the chances of a pullback in the coming days.
Additionally, the last three price candles on the Shiba Inu daily chart formed a sequence of higher highs at their close. But that coincided with the decline in trading volumes three days in a row, thus further validating the underlying weakness of SHIB’s uptrend.
That does not mean an immediate price correction. Based on the breakout that followed the formation of a Bull Flag indicator, the SHIB bulls appeared to have been considering $ 0.00005222 as their next bullish target.
25% -35% retracement of SHIB price?
A Fibonacci retracement chart between the Shiba Inu swing high of $ 0.00003466 and the low of $ 0.00000621 features a series of levels that previously served as support and resistance.
For example, the 1.618 Fib line on the chart almost coincided with the target of the Shiba Inu Bullish Flag, just two notches higher at $ 0.00005224.
Therefore, The confluence resistance of the 1.618 Fib line and the Bullish Flag target raised the potential for shib to test the $ 0.00005222- $ 0.00005224 price range before undergoing a strong price correction.
In doing so, the cryptocurrency’s next downside target is near the 1.0 Fib line of $ 0.00003466, almost 25% -35% below the current price and $ 0.00005224.
Secondly, a breakout above the 1.0 Fib line risks temporarily invalidating the entire bearish setup. That said, a bullish move can still make SHIB excessively overvalued based on its RSI readings, increasing the potential for a correction in future sessions.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Each investment and commercial movement involves a risk, you must do your own research when making a decision.
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