Disclaimer: The findings of the following analysis are the sole opinions of the writer and should not be taken as investment advice
As the broader market continued to witness outflows following Bitcoin descent to $59,000, AAVE too followed wider consensus. However, the alt’s sell-off was rather brutal when compared to some of its counterparts. The last 24 hours saw AAVE shed 15% of its value as five straight red candles lined up on its 4-hour chart.
To cushion its losses, much responsibility fell on the 61.8% Fibonacci level. This also coincided with the 200-SMA (green) and Visible Range POC. Should the region hold off an extended decline, AAVE will find a resting ground before a bullish rebound.
AAVE 4-hour Chart
Source: AAVE/USD, TradingView
Barring a single candlewick that tagged the $458-mark, AAVE’s reaction to the broader market decline was quite severe. A sixth straight red candlewick was in formation on the 4-hour timeframe, a development which was last observed during 7 September’s flash crash.
With momentum riding behind the sellers, AAVE threatened another 5%-6% drawdown, before testing the strong support zone at the 61.8% Fibonacci level.
Now, the aforementioned Fibonacci level matched against selling pressure in early August and mid September. This time around, the 4-hour 200-SMA (green) and Visible Range’s POC helped form a support trifecta around the $300-mark. Ideally, this area will provide stability to AAVE’s downfall and help trigger a bullish reversal when the broader market turns risk-on again.
On the flip side, should the bears slice under this strong confluence, an additional 13% sell-off towards the 78.6% Fibonacci level will come to light.
Reasoning
AAVE’s indicators also backed further near-term weakness. The RSI pointed south from 44 and had more room to fall before touching the oversold zone. The MACD even flashed a sell-signal after recording a bearish crossover.
However, AAVE’s overall trend was not under threat, at press time. The Directional Movement Index’s +DI line maintained itself above the -DI, despite its convergence.
Conclusion
AAVE looked primed for an additional 5% drawdown in the coming sessions. From there, a support trifecta could aid in AAVE’s recovery and negate an extended decline. Traders can opt to long AAVE within the aforementioned support area and bag the alt at a discounted level.
However, stop-loss should be placed right below the $300-mark.
