PancakeSwap witnessed a surge in selling pressure in the past week. As the altcoin grapples with the bearish trend, is a potential reversal in sight?
Over the past few months, PancakeSwap (CAKE) has been undergoing a persistent downtrend in its daily chart, reflecting an unfavorable market condition for the crypto. A significant development during this period has been forming an ascending channel, representing an upward-sloping pattern within a defined range.
The channel recently encountered resistance near the year-long trendline resistance (white, dashed), which connects the peaks in a downtrend or the lows in an uptrend, further reinforcing the bearish outlook.
A key turning point was the emergence of a bearish engulfing candlestick from the trendline resistance. This chart pattern often signals a potential trend reversal to the downside. Consequently, the price action experienced a breakdown from the ascending channel, adding to the bearish momentum.
In addition, CAKE's lower highs consistently tested the $3.4-$3.5 support level (which has now turned into resistance), shaping a descending triangle pattern. This pattern, characterized by a horizontal support line and a descending trendline, usually suggests a potential continuation of the bearish trend.
These technical factors culminated in a dramatic 27% decline last week, pushing the price to test the long-term support level at $2.5 and reaching the lows experienced in June 2022.
This market movement caused the Bollinger Bands, a technical indicator that measures market volatility, to expand significantly. Such an expansion indicates a high-volatility phase, often followed by a period of lower volatility as the market seeks to find equilibrium.
Adding to the bearish narrative, the Relative Strength Index (RSI), an oscillator used to measure the speed and change of price movements, has plunged to 17. This low value signifies an oversold condition, hinting at a possible price reversal in the upcoming days.
On the other hand, the volume oscillator, an indicator that measures the difference between two moving averages of volume, has increased. This rise suggests that the price decline is accompanied by heightened trading activity, indicating strong selling pressure in the market.
The 'social dominance' metric is an important measure that captures a crypto's popularity and presence across various social media platforms. PancakeSwap has recently experienced a notable decline in social dominance, which has hurt its price. Compounding this issue, the platform's decision to reduce its yield has further dampened the overall market sentiment.
A reduction in yield generally implies that the rewards for providing liquidity or participating in staking activities are decreased. This incentive decrease can render the platform less appealing to investors and users, leading to a weaker market outlook.
These developments have collectively contributed to a drop in daily active addresses, a key indicator of investor sentiment. The combination of a falling price and the downward trend in these metrics suggests a strong bearish advantage in the market. However, a potential reversal from these extreme readings could allow bulls to regain their footing and shift the market dynamics.
Monitoring on-chain metrics is crucial for understanding market sentiment and the overall health of a network. By closely monitoring these indicators, investors can better anticipate potential market changes and make informed decisions about their investments.
Considering the oversold Bollinger Bands and RSI, a strong bearish edge currently exists, but a potential reversal might be on the horizon. If the RSI recovers above 50, buyers could interpret this as a sign of a strong comeback and a trend reversal.
In a bearish scenario, any close below the $2.5 support could propel the coin into a bearish price discovery phase. Conversely, if buyers find their footing and retaliate, a reversal above the $3.4-$3.5 resistance could pave the way for long-term recovery. In this case, buyers could aim to retest the $5.5-$6 levels in the coming months.
Considering the technical and on-chain analysis, it is essential to approach CAKE investments with caution. The oversold conditions and potential reversal signals could present opportunities for investors, but it is vital to monitor the market closely.
Tracking Bitcoin's movement is crucial, as CAKE is highly correlated with BTC. Ultimately, investors must weigh the risks and rewards and make informed decisions based on their investment goals and risk tolerance. The Okto DeFi App presents a self-managed storage solution for CAKE tokens while giving users access to an extensive selection of DeFi investment options.