Solana eyes 40% jump in August despite long-term bearish signals

Solana eyes 40% jump in August despite long-term bearish signals

Solana (SOL) fell to a two-week low around $35.50 on July 26, mirroring the downside moves elsewhere in the crypto market. Nonetheless, technicals suggest Solana’s price is on track for a 40% gain in August.

SOL reaches critical inflection point

Ironically, Solana’s bullish setup comes from a classic bearish continuation pattern.

On the daily chart, the price of SOL has been consolidating within what appears to be a “bear flag,” a technical pattern that formed during a downtrend and resolved after the instrument exited as prices fell further.

The so-called bear flag breakdown has yet to happen. Conversely, the SOL has been holding the lower trendline as support, increasing the likelihood of a sharp rebound to the upward trendline, as shown in the chart below.

SOL/USD daily price chart with a “bear flag”. Source: TradingView

The rebound setup makes SOL likely to rally to $49.50 in August, up 40% from its July 26 price. In May, the $49-50 level was both support and resistance.

Solana network performance still an issue – researcher

Given that SOL’s overall bias remains skewed to the downside, a potential bear flag rally would temporarily ease Solana bulls.

Macro forces such as the Federal Reserve’s hawkish monetary policy and the collapse of the $40 billion “algorithmic stablecoin” project Terra (LUNA) — now renamed Terra Classic (LUNC) — have thrown cryptocurrency markets into disarray. So, like any other risky asset, Solana’s financial and network usage metrics are down in 2022.

For example, according to data from Messari, the average number of daily transactions on the Solana blockchain decreased by 17.6% in the second quarter of 2022 compared to the previous quarter.

Meanwhile, Solana’s revenue fell 44.4% sequentially (also due to recurring network outages).

Solana Financial Overview Q2/2022.Source: Messari

Messari researcher James Trautman noted: “As seen in 2021 and throughout Q1 and Q2, degraded network performance reduces network usage and reduces ongoing revenue streams to the network.” He added:

“If Solana continues to experience a sustained period of performance degradation, the drag on fundamental usage could catalyze volatility and drag on network value.”

Bear flag breakdown?

A mix of macro and network-related issues has the potential to trigger a bear flag breakdown in September.

Related: All ‘Ethereum Killers’ Will Fail: Blockdaemon’s Freddy Zwanzger

Based on the technical setup shown in the chart below, a decisive close of the SOL below the lower trendline of this sign means more downside is likely in the $21-23 area.

SOL/USD daily price chart with bear flag breakdown setup. Source: TradingView

In other words, a 35%–38% drop from current price levels.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Every investment and trading move involves risk and you should do your own research when making a decision.


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