Cardano price traps bears before ADA returns to $2

Cardano price may trap many new short positions opened after the Monday close.
Monday’s daily candlestick pattern is exceptionally bearish, but sellers have yet to confirm its bearish nature.
ADA is very close to completing a major bull breakout setup.

Cardano price action may be playing a bad trick and nasty head-fake on short-sellers. Monday’s price action saw Cardano drop more than 6% from its intraday high to close the day with a 1.2% loss. Additionally, the rejection came at the top of the Ichimoku Cloud (Senkou Span B), giving sellers more than a good enough reason to create new short positions.

Cardano price could trigger a bullish entry setup not seen since August 2021

Cardano price on the daily chart shows ADA is currently above the Ichimoku Cloud for the second consecutive day. Monday and Tuesday’s moves above the Ichimoku Cloud represent the first time ADA has been above the Ichimoku Cloud since September 18, 2021.

If Cardano price can close above the Ichimoku Cloud on the daily chart, it will fulfill an Ideal Bullish Ichimoku Breakout. An Ideal Bullish Ichimoku Breakout has only occurred on the daily chart, and it has only happened three times since the Covid Crash in March 2020. All three resulted in massive rallies for Cardano.

Confirmation, however, is needed. While the intraday price action shows Cardano above the Ichimoku Cloud, sellers could still push ADA back into the Cloud. In addition, there are likely many traders anticipating a new leg lower because of the resistance at Senkou Span B and the Relative Strength Index at 7.

Many traders still view the RSI as overbought at 70, but those levels changed in 2012. 80 and 90 are now the overbought levels when the RSI is in bull market conditions. Many sellers are trapped, attempting to short. A close above the daily Ichimoku Cloud would likely trigger an expansive move towards the $2 value area.

ADA/USD Daily Ichimoku Kinko Hyo Chart

But sellers have a good argument for a pullback in Cardano price. There are significant gaps between the bodies of the daily candlesticks and the Tenkan-Sen, a condition that is often corrected in a short period of time. Downside risks are likely limited to a support cluster consisting of the 50% Fibonacci retracement, Kijun-Sen, and Tenkan-Sen at $1.01.

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