Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be considered investment advice
LUNA’s ascending wedge has been forming for over a month and it is now, threatening a potential 46% sell-off. Traders must be cautious of a close below the confluence of the 4-hour 200-SMA (green) and 23.6% Fibonacci level, one which could trigger a bearish outcome. Meanwhile, bulls can aim for an early cut-off at the 38.2% Fibonacci level – A zone that held up a reliable support level in October.
At the time of writing, LUNA was trading at $51.5, up by 4.9% over the last 24 hours.
LUNA 4-hour Chart
Three higher highs set up at $41.5, $49.5, and $61, along with three higher lows at $27.2, $41.3, and $48.4, outlined an ascending wedge on LUNA’s 4-hour chart. Based on the highest peak and the lowest valley within the bearish pattern, LUNA eyed a 47% drawdown from the breakout point. Should LUNA forego its streak of higher lows and weaken below the 200-SMA (green) and 23.6% Fibonacci level, sellers can drive the price all the way to $23.52.
Bulls can counterpunch immediately at the 38.2% Fibonacci level- A zone that enabled a reversal following a double top at $49 in October.
On the flip side, an upwards breakout can be possible if LUNA registers an immediate close above $55, backed by strong volumes. Such an outcome would set LUNA on course for $81.
The 4-hour RSI traded within a steady down channel, forming several bearish divergences with respect to LUNA’s price action. Such signals are commonly observed before a retracement takes place.
Having said that, LUNA could extend its wedge over the near term as the MACD and DMI were still within favorable positions.
LUNA can consolidate close to $55 as the MACD and DMI shift to bearish positions. Once sellers respond to such cues, LUNA would break south of its wedge and set up a potential 47% sell-off.
Traders can go short once LUNA closes below the confluence of its 200-SMA (green) and 23.6% Fibonacci level and set take-profits at $23.5.