Since June 21, the price of XLM has been approaching the peak of a symmetrical triangle continuation pattern.
Stellar has failed to hold the 50-week simple moving average, which is a major support level (SMA).
The oversold condition in June did not result in a significant rally in the price of XLM.
The price of XLM is approaching the end of a symmetrical triangle formation that was established in reaction to the daily Relative Strength Index’s notable oversold state (RSI). As a continuation pattern, the odds are stacked against a bearish resolution and a possible new low for Stellar.
The price of XLM fell about 30% in the second quarter, making it the lowest quarter since 3Q2019. The 75 percent drop from the high of $0.797 on May 16 was highlighted by a 29 percent drop on May 19 and a 20 percent drop on June 20.
XLM pricing has been coiling in a symmetrical triangular formation since the June 22 low of $0.198, releasing the oversold situation but not offering many hints as to Stellar’s directional intentions moving forward.
During the formation of the symmetrical triangle, two levels have been critical to the price of XLM: the low of $0.274 on May 23 and the demanding 50-week SMA at $0.269. They’ve combined to act as a magnet for Stellar, offering opposition at times and support at others.
Weekly chart of XLM/USD
The symmetrical triangle’s observed movement is 50%, implying a final XLM price of $0.127. It would wipe out much of the gains from 2021 and result in a drop of more than 80% from the May high.
The 78.6 percent Fibonacci retracement of the March 2020-May 2021 gain at $0.191 is a more realistic and higher probability scenario for XLM price to sweep below the June 22 low of $0.198 and bottom in the neighborhood of the 78.6 percent Fibonacci retracement of the March 2020-May 2021 advance. It would be a 25% reduction in pricing from where it is now.
XLM must trade below $0.250 to initiate the symmetrical triangle pattern. After that, selling should pick up as the 50-week SMA and the bearish Death Cross formation press in on Stellar.
Daily XLM/USD chart
With a daily close above the union of the May 23 low of $0.274 and the triangle’s upper trend line, now at $0.284, XLM price can avoid the bearish thesis. Stellar could rally to the descending 50-day SMA at $0.336 or the apex of the last symmetrical triangle at $0.343 if the rally is successful.
To recap, after the May fall, the price of XLM formed a symmetrical triangle, and as a continuation pattern, Stellar resolved to the downside with a 40% drop in June. Following a decrease, it has now plotted another symmetrical triangle. If history is any guide, the price of XLM is about to repeat itself.
The basic message is that investors in Stellar must be ready for the third leg of the decline that began in May./n
