Stellar (XLM) Price Analysis: Potential 40% Downside Risk
Stellar (XLM) Price Risks Correction Amid Bearish Indicators
Stellar (XLM) is showing signs of weakness after a strong performance earlier in the year. The token has declined by 16.1% over the past month, with an 8.2% drop this week and a further 1.7% decrease in the last 12 hours. While year-to-date gains remain near 300%, several bearish signals indicate potential for further selling pressure.
Traders should watch upcoming sessions to see if Stellar can hold its support levels or if a significant correction is imminent.
Derivatives Market Weakness
A key warning sign comes from the derivatives market. Open interest in Stellar futures has declined significantly, suggesting reduced leverage and a lower likelihood of squeeze-driven rallies.
On July 18, Stellar's open interest reached $588.53 million. Since then, it has fallen to $306.22 million, representing a decrease of nearly 50%. This decline weakens the potential for rally-fueling short squeezes, making the market more vulnerable to spot selling pressure.
Bearish EMA Crossovers
Momentum in the spot market has also turned negative, with key Exponential Moving Average (EMA) crossovers signaling bearish trends.
- On the 12-hour chart, the 20 EMA has crossed below the 50 EMA, indicating that sellers have taken control in the short term.
- On the 4-hour chart, the 50 EMA is nearing a crossover below the 200 EMA. A similar crossover earlier this month preceded a price decline.
Descending Triangle Pattern
On the daily chart, Stellar is trading within a descending triangle pattern, a bearish formation characterized by lower highs against a flat support level.
The current price is near $0.39, just above support levels at $0.38 and $0.36. A failure to hold these levels could trigger a slide towards $0.23, a potential drop of nearly 40%.
Stellar is facing pressure from multiple bearish factors, increasing the risk of a significant price decline. A break above $0.43 would invalidate the bearish setup and allow for potential recovery. Otherwise, sellers maintain control.