Friday, January 21, 2022

Avalanche (AVAX) in ‘overbought’ zone after 100% gains in a week — Correction ahead?

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The Avalanche blockchain platform’s native asset, AVAX, fell on Aug. 19 as merchants determined to safe their earnings from its 100% upside transfer.

The AVAX/USD trade price plunged greater than 16% after hitting a three-month excessive of $36.64, placing the brakes on a seven-day upside increase that noticed its value rise by 111%. It seems that merchants felt uneasy about getting into AVAX markets close to $36 due to its historic reference as a sell-off stage, capping AVAX’s earlier restoration makes an attempt from March to Could.

Overvaluation dangers

AVAX additionally dropped on interim overvaluation fears. The day by day relative strength index (RSI) of Avalanche’s token crossed above 70 throughout its upside increase. Basically, markets think about an RSI studying above 70 as overbought for the underlying asset, noting that the worth has climbed excessively greater and, due to this fact, ought to bear a correction.

Avalanche (AVAX/USD) day by day value chart. Supply: TradingView

Extra proof for AVAX’s interim overvaluation appeared when wanting on the Bollinger Bands. The indicator consists of a center band (a 20-period easy transferring common) and two outer bands set at two commonplace deviations under and above the center band.

When the worth overreaches its valuation within the quick time period, it tends to leap above the higher band. Equally, slipping under the decrease band means that the asset is buying and selling under its present valuation. AVAX crossed above the higher Bollinger Band following the newest value rally.

The 2 indicators have been instrumental in predicting recent AVAX price corrections. For example, through the February rally the place AVAX surged over 500% in simply two weeks, its RSI and Bollinger Bands each alerted t its extreme interim valuation.

AVAX momentum indicators alert overbought dangers. Supply: TradingView

The worth wiped off 65% of its beneficial properties within the subsequent three weeks to neutralize its overbought standing. Its subsequent interim assist got here on the 23.6% Fibonacci line ($22.29) of the Fibonacci retracement graph drawn between the $63.3 swing excessive and $9.62 swing low.

The identical 23.6% Fibonacci stage now serves as the following line of assist ought to the worth of AVAX right following its RSI and Bollinger Bands alerts.

Fundamentals

The most recent bout of AVAX’s value increase appeared within the wake of the launch of its $180 million “liquidity mining incentive program” to deliver decentralized finance (DeFi) companies to its blockchain platform, together with lending platform Aave and automatic market protocol Curve Finance.

Associated: Avalanche Rush to give out more than 180M in DeFi incentives

AVAX’s bounce additionally appeared as a rally available in the market of its prime rival, Ether (ETH), flattened out. It is because merchants are inclined to rotate capital out of overvalued markets to guess on property they deem undervalued.

The views and opinions expressed listed here are solely these of the creator and don’t essentially replicate the views of Cointelegraph. Each funding and buying and selling transfer includes threat, and it is best to conduct your individual analysis when making a choice.