Algorand: Here’s how this divergence could play out for ALGO traders

Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be considered investment advice.

As the buyers built pressure at the $0.41-resistance, the bears quickly reacted by inflicting a steep plummet toward Algorand’s [ALGO] multi-monthly lows. The market-wide drawdowns accelerated the alt’s southbound journey to the $0.29 support.

While the recent recovery slammed into the 61.8% Fibonacci resistance, the resultant rebound can slow down ALGO’s near-term recovery prospects. At press time, ALGO traded at $0.31788, up by 13.04% in the last 24 hours.

ALGO 4-hour Chart

Source: TradingView, ALGO/USD

After the buyers lost their edge at the $0.41-resistance, ALGO saw a string of red candles after a bearish engulfing candlestick. The alt lost over a third of its value in just six days (9-15 June) and poked its 16-month low on 15 June.

The recent bullish engulfing candlestick negated the selling pressure by provoking double-digit 24-hour gains. But the 61.8% Fibonacci resistance coincided with the 55 EMA and created a stiff barrier for the buyers.

ALGO also registered an over 65% uptick in trading volumes alongside the recent gains. This reading depicted a robust buying move but the broader trend still favored the sellers.

The traders/investors must watch out for a close below the 20 EMA and the $0.3101-support. A fall below this level could lead ALGO toward its Point of Control (POC, red) in the $0.29-zone. Any bounce-back from the ribbons could propel an extended squeeze phase.   

Rationale

Source: TradingView, ALGO/USD

Over the last five days, the RSI marked higher peaks whilst jumping above the equilibrium. But the resultant bearish divergence with the price pulled the index below the mid-line. A fall below the 47-45 range would affirm the chances of a near-term slowdown on the chart.

Aroon Up’s (yellow) recent trajectory exhibited a buying inclination. Its close below the 70% mark could hamper the recovery chances. 

Conclusion

The confluence of the 61.8% level, 55 EMA, and the RSI bearish divergence could inflict an extended decline. Any close below the $0.31-zone could expose the alt to a 6-7% downside toward the POC before any trend-altering move. 

A bounce back from the 20 EMA could help the buyers retest the 61.8% level in the coming sessions.

Finally, the investors/traders should keep a close watch on Bitcoin’s movements as ALGO shares a 72% 30-day correlation with the king coin.