SOL price enters overbought territory, but history shows that bulls are not afraid of excessive Solana valuations.
Solana (SOL) jumped several times past a critical resistance level that had limited its recovery attempts during the November 2021-March 2022 price correction, raising hopes for more upside in April.
SOL price saw extreme pullbacks as it tested its descending trend line for several months in recent history. The SOL/USD pair fell 60% two months after reversing from said resistance level in December 2021. Similarly, it had fallen more than 40% in a similar pullback led by a sell-off near the price trendline in November 2021.
Solana flipped the resistance trendline as support (S/R flip) after breaking above it on March 30, accompanied by a spike in trading volume that showed traders’ conviction in the breakout move. In doing so, SOL price surged 25% to reach $135, putting the $150 psychological resistance level within reach.
Why is SOL (Technically) Bullish?
From a technical perspective, SOL’s breakout move above its downtrend line, along with a bullish crossover between its two key moving averages: the 20-day exponential moving average (20-day EMA; the green wave), and the 50 day EMA (the red wave).
The technical indicator, called the golden cross, occurs when an asset’s short-term moving average jumps above its long-term moving average. Traditional analysts consider this cross as a buy signal. For example, the 20-50 EMA crossover in August 2020 may have helped push SOL price by over 650% to over $267, in addition to other fundamental and technical catalysts. As such, the golden cross increases the probability that SOL will continue its rally as well as its break above the descending trendline resistance.
RSI Divergence
The upside outlook increases further if a technical fractal highlighted by Delphi Digital is to be believed.
The crypto research firm highlighted a correlation between SOL price and the combination of its two technical indicators: S/R change and Relative Strength Index (RSI) divergence.
In particular, the first time the Solana RSI jumped above 70, an “overbought” area, after a strong price uptrend, which also broke the falling trendline support of that period, SOL trended to continue to rally despite its RSI consolidating lower or sideways.
SOL rallied 378% after the first time its RSI broke above 70 in August 2021. Similarly, the RSI’s overbought period during May-June 2021 also coincided with Solana’s 268% bullish move. The fractals looked similar to how SOL has been working lately, Delphi Digital suggested.
Therefore, the SOL/USD pair could continue its uptrend when using the Fibonacci retracement levels, drawn between $261 and $77.50, which suggests that the intermediate upside target is $147 to $150.
Conversely, a pullback during or before testing the $147-$150 price range may result in the SOL retesting the $120 level as its interim support, with a possible drop towards the 20- and 50-day EMAs.
By Audy Castaneda
