3 reasons why Cardano could keep falling even as ADA price recovers by 58%

Cardano (ADA) pared a large chunk of weekly losses incurred during this week’s cryptocurrency market crash.

ADA price hit an intraday high of $0.60 on May 13, a day after recovering 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 crypto market, with major cryptocurrencies bitcoin (BTC) and ether (ETH) gaining 23% and 25.75% from yesterday’s lows, respectively.

The recovery of the top ten crypto assets in the last 24 hours. Source: Messari
3 reasons why Cardano could keep falling even as ADA price recovers by 58%
3 reasons why Cardano could keep falling even as ADA price recovers by 58%

But ADA’s strong rally does not promise sustained bullish continuation, at least considering 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 paralleled US stocks, particularly tech stocks.

Special, the correlation coefficient between ADA and the tech-heavy Nasdaq Composite was 0.93 on May 13, meaning any major stock move would likely pull Cardano in the same direction.

The correlation between Cardano and Nasdaq Composite. Source: TradingView

in addition, The chances of a strong recovery in the Nasdaq are slim right now, as analysts highlight the stretched valuations of large tech stocks and their likelihood that they will fall further in an environment of higher interest rates.

“That [hacha] it’s more dependent on high-growth tech companies,” said Richard Waters, West Coast Editor of the Financial Times, adding:

“This is where valuations have expanded the most and the market is having the most trouble finding a bottom.”

Quite simply, Cardano’s continued positive correlation with Nasdaq could lead to stronger declines in the ADA market, at least for now.

ADA’s “Missing Fifth Wave”

Second, another hint of a possible Cardano price drop comes from a technical structure highlighted by Capo of Crypto, an independent market analyst.

The analyst’s pseudonym mention, that that ADA could drop to the $0.30-$0.35 range below, given its chance to paint the fifth and final wave of a bearish Elliott Wave setup as illustrated in the chart below.

ADA/USD two-day chart with a bearish Elliott wave setup. Source: Capo by Crypto/TradingView

The target area coincides with the January 2021 support zone, which preceded an 850% bull run.

Erupting from the descending channel

On the third place Cardano has broken below its multi-month descending channel in another sign of weakness.

ADA has been trending down within a range defined by two parallel descending trendlines, underscoring traders’ current strategy of buying near the lower trendline and selling towards the upper trendline.

But on May 12, the ADA/USD pair broke below the lower trendline near $0.568, showing traders ignored the buying opportunity.

Instead, buyers appeared near $0.378 to accumulate ADA which, as discussed above, prompted a price rally. Nevertheless, Trading volume supporting the recovery move was lower than during the sell-off, suggesting a moderation in the recovery trend.

ADA/USD daily chart. Source: TradingView

At the same time, the pullback move to the upside showed signs of further weakness after testing the bottom of the descending channel as resistance to confirm the breakout. If the bulls fail to turn the price ceiling into support, the chances of ADA continuing its downtrend will be much higher.

Conversely, a decisive move above the channel’s lower trendline could see ADA testing its upper trendline near $1.

The views and opinions expressed herein 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 do your own research when making a decision.

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