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Analysis

Polygon [MATIC]: How short sellers can take advantage of this opportunity

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Source: Canva

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

MATIC’s recent streak of bearish engulfing candlesticks has substantially impaired buying efforts as the alt jumped below its three-month trendline resistance.

While the current structure tilted in favor of sellers, there are a few caveats to be wary of. The current selling pull outside the bearish pennant could lead MATIC into an undesired spiral of losses in the near term. At the very least, it has delayed the bullish comeback opportunities.

At press time, MATIC traded at $0.599, down by 4.65% in the last 24 hours.

MATIC Daily Chart 

Source: TradingView, MATIC/USDT

From a rationally conservative lens, the recent fall below the three-month trendline (yellow, dashed) could aggravate the selling vigor. Furthermore, this fall chalked out a bearish pennant on the Daily and on shorter timeframes. 

After hovering at the Point of Control (POC, red) level for over a week, the 23.6% Fibonacci resistance rejected higher prices. Thus, MATIC witnessed a down breakout from its bearish pennant.

Should the current candlestick close below the $0.59, the alt would lose its 13-month support only to confirm a further downside. In this case, potential shorting targets will rest in the $0.427-$0.5 range. The declining trading volumes during the pennant oscillation have further fueled the probability of an extended downfall. 

Having said that, an analysis of the distance between 20 EMA (red) and the 200 EMA (green) suggested a revival could be due. The last time these EMAs saw such a gap was in May last year. Should the sellers dwindle, MATIC could see a compression phase in the $0.5-zone. 

Rationale

Source: TradingView, MATIC/USDT

The RSI saw a revival from the oversold mark on its peaks and troughs over the last few days. After a bearish divergence with the price, it saw a rising wedge breakdown. To practically increase the chances of profiting from a short, the index needed to close below its 31-baseline.

The DMI lines blended well with a bearish viewpoint as the -DI still looked north. However, the CMF’s higher troughs have kept alive the possibility of a bullish divergence with price. In this case, the chances of a tight phase would heighten.

Conclusion

Primarily, the bearish pennant setup rejected by the 23.6% level, trendline resistance, and the POC could cause an extended breakdown. However, the gap between 20/200 EMA alongside a potential CMF divergence can work in favor of bulls.

Hence, for short calls, the sellers should wait for a close below the $0.55-$0.59. The take profit levels would remain the same as suggested above. 

Moreover, the investors/traders must keep a close eye on Bitcoin’s movement as MATIC shares a staggering 97% 30-day correlation with the king coin.

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With a background in financial analysis and reporting, Yash is a full-time journalist at AMBCrypto. He has a keen interest in blockchain technology, with a primary focus on technical analysis of cryptocurrencies.

Disclaimer: AMBCrypto's content is meant to be informational in nature and should not be interpreted as investment advice. Trading, buying or selling cryptocurrencies should be considered a high-risk investment and every reader is advised to do their own research before making any decisions.