Cardano price forming an explosive continuation pattern
|- Cardano price closed last week with a Doji candlestick despite broader market weakness.
- Weekly Relative Strength Index (RSI) shows a head-and-shoulders top.
- Key moving average finally caught up to price.
Cardano price catapulted 9000% from the 2020 low to 2021 high, and the momentum carried the price beyond the all-time high set in January 2018. Over the last five weeks, ADA has been shaping a pennant pattern on the weekly chart.
Cardano price could run immediately
A classic pennant is preceded by a straight-up price trend and is short in duration. It is a frequent formation with extremely rapid and relatively reliable outcomes. Following a breakout, prices tend to move immediately, with few pullbacks or throwbacks in either direction.
If ADA shapes a pennant pattern, traders should be prepared for a sharp resolution over the next two weeks. Since the pattern is a continuation pattern, traders should lean their trading preparation toward an upside breakout.
ADA needs to clear the topside trend line at $1.47, and it should be with compelling underlying volume. Upside targets begin to emerge at the 1.618 Fibonacci extension level of the February-March decline at $2.08, followed by the 2.618 extension level at $3.39 and then the 3.618 extension level at $5.50. The big level is the 1.382 extension level of the 2018-2020 bear market at $7.55.
ADA/USD weekly chart
Failures do occur, and traders should turn their sights immediately to the 10-week simple moving average (SMA) at $1.00, a significant psychological level. If that happens, look for the RSI to break the head-and-shoulders top’s neckline, thereby raising the stakes.
This failure could turn ugly below the 10-week SMA as the next support does not materialize until the 0.236 retracement level of the 2020-2021 bull market at $0.53. If the decline continues, and after a few heart palpitations, Cardano price should firm at the 40-week SMA at $0.36, representing a 70% loss from the current price.
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