How vulnerable is Chainlink to a sharper decline?

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

Chainlink’s collaboration with augmented reality platform OVR made headlines once again after both the parties were involved in a $65K prize distribution event that utilized the Chainlink VRF – a smart contract function designed to generate randomness.

While Chainlink continues to see wider adoption, its native cryptocurrency, LINK, has seen regular drawdowns due to an overall bearish broader market. At the time of writing, LINK was being traded at $17.34, down by 8% over the last 24 hours.

Chainlink 4-hour chart 

Source: LINK/USD, TradingView

LINK flipped its 20-SMA to bullish on the back of a recovery, but gains were denied above $19.6. With the sellers now back in control of the market, LINK formed a descending channel and traded within its demand zone of $15-$17.5. Even though the pattern does usually see a break to the upside, LINK was trading in a sensitive zone and there were chances of a breakdown.

A close below $15 could see the price head further south and towards the 11 January swing low of $12.7, representing an additional 23% decline from its press time level.

Reasoning 

The Relative Strength Index was denied a break above 50 and moved in bearish territory, at the time of writing. The MACD formed a bearish crossover and its histogram noted rising bearish momentum. The Directional Moving Index also highlighted a hike in downwards pressure. The -DMI line moved well above the +DMI as selling pressure was on the up. A rising ADX helped confirm a strengthening bearish trend.

Going forward, LINK would most likely trade within its demand zone of $15-$17.5 and traders must advise caution as a movement in either direction seemed possible from this area. The Visible Range noted a lack of interest for LINK at its press price level, a finding that meant that the cryptocurrency was vulnerable to an extended sell-off.

Conclusion 

A fall towards the lower end of LINK’s demand zone is likely over the next few sessions and the bulls could look to alleviate bearish control. However, the price seemed also open to an additional breakdown, one that could push LINK towards its 11 January swing low of $12.7.