Bitcoin has dropped below the $40k mark in recent hours. Cardano has seen a strong move on lower time frames over the past week as it rallied from $1.23 to $1.63 and appeared to be breaking out of the downtrend. However, at the time of writing, the price has declined and is below the trendline resistance since late November.
Source: ADA/USDT on TradingView
The recent drop from $1.63 reached the $1.20 support. The short-term bounce from $1.069 to $1.63 is used to plot the Fibonacci retracement levels (in white). At time or as of writing, the 70.7% retracement at $1.23 has been retested as a resistance.
However, the price is in the long-term demand zone. Therefore, a bullish reaction, even if it is short-lived, can be expected.
On top of ADA’s previous rise to $1.63, $1.28 has acted as resistance. This could be an area where sellers are once again entering with strength.
Theoretical basis
Source: ADA/USDT on TradingView
The RSI has dipped below 30 and is oversold on the hourly chart. This could see a slight pullback and a small, brief rally in the price of ADA.
OBV has been trending down during ADA down from $1.63 to reflect strong selling volume. However, over the past few days, buying volume has appeared. This is a response that can be expected in an area of demand. The support levels in the timeframe are above the $1.20 area and so is the $1, so a reaction at this area is expected. However, this does not signal that buyers are in control of the market.
Inference
Cardano appears to have broken out of a longer-term downtrend last week. Bitcoin is also hovering above the support at $40.5k, but over the past few hours, this level has given way to bearish pressure. It remains unclear where this downtrend could reverse. In the short term, the $1.28 level is a key level where ADA could retest and fall again, or consolidate and turn support.