Solana (SOL) price faces potential 45% drop

Solana (SOL) price faces potential 45% drop

Solana (SOL) fell on May 26, continuing its drop from the previous day amid a broader pullback across the cryptocurrency market.

Ongoing drop in SOL price

SOL price fell more than 13% to around $41.60, its lowest level in almost two weeks. In particular, The SOL/USD pair also broke out of what appears to be a “bearish pennant”, a classic technical pattern whose occurrences often precede further bearish moves in a market.

Specifically, bearish pennants appear when price trades within a range defined by falling trendline resistance and rising trendline support.

Bearish pennant pattern. Source: ThinkMarkets

These patterns are resolved after the price breaks below the lower trend line, accompanied by higher volumes. As a rule of technical analysis, traders decide on the profit target of the pennant after adding the length of the previous lower leg (called the “flagpole”) to the breakout point.

SOL has suffered a similar breakout after closing below the lower trend line of its pennant on May 25, as shown below. In theory, Solana’s profit target is close to $23, 45% lower than the price on May 26.

Solana (SOL) price faces potential 45% drop
SOL/USD price daily chart with ‘bearish pennant’ setup. Source: TradingView

However, the SOL bearish pennant breakout appears without a spike in trading volumes, suggesting that traders are not entirely sold on the move. This could lead the token to retest the lower pennant trend line as resistance.

Also, if the trendline rebounds as support, there is a risk of invalidating the bearish pennant setup and the 20-day EMA (the 20-day EMA – the green wave) approaching $57.59 next. bullish target.

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Solana (SOL) price faces potential 45% drop

Conversely, a pullback could keep SOL’s profit target near $23 in sight, with $35.50—the May 12 price floor that preceded a strong bounce—as interim support.

Solana price support confluence

SOL is also trading near a confluence of support, comprising multi-month horizontal and ascending trend lines.

Solana (SOL) price faces potential 45% drop
Weekly price chart of the SOL/USD pair. Source: TradingView

The horizontal trend line near $45.75 served as resistance during the April-Aug 2021 session and subsequently turned into support between Jan 2022 and March 2022. Simultaneously, the rising trend line has been capping the prolonged bearish attempts of SOL since March 2021.

When the two trend lines converge, they could become a psychological entry point for investors with a long-term bullish outlook.. That would mean SOL would bounce back to its next upside target near $79, which also coincides with a multi-month descending trendline resistance.

On the other hand, a continued sell-off in the Solana market would see SOL risking another massive drop, as discussed in the bearish pennant setup above.

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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