LUNA risks collapsing 50% if it completes a bearish head and shoulders pattern

LUNA could fall close to $25 in the coming weeks if the head-and-shoulders (H&S) setup develops, suggesting a 50% price drop. analysis Technique of CRYPTOPIKK.

H&S patterns occur when price hits three consecutive highs, with the middle high (referred to as the “head”) higher than the other two (left and right shoulders). All three peaks culminated in a common bottom known as the “neckline”.

Traders often try to open short positions when the price falls below the H&S neckline. However, some people use the “two-day rule” where they wait for a second breakout confirmation when price retests the neckline from a decline as resistance before entering a short position.

In the meantime, the ideal short target for traders should be the length that corresponds to the maximum distance between the head and the neckline.

In the case of LUNA, the price is currently moving towards such an H&S short target which is currently near $25 as shown in the chart below.

Source: TradingView

Meanwhile, the volume recorded during the H&S breakout looks steady, underscoring that the ongoing downtrend has enough bearish sentiment. This increases the risk that the LUNA market will continue to weaken.

LUNA’s daily momentum indicators, most notably the Relative Strength Index (RSI) and Money Flow Index (MFI), have all entered their respective oversold zones, which some may view as a buy signal. CRYPTOPIKK recognizes that they could increase LUNA prices but says that “the trend still seems to be bearish”.

Where is the floor

The bearish outlook comes as LUNA trades under pressure from strong macroeconomic catalysts, chiefly the Federal Reserve’s decision to completely halt its monthly $120 billion purchase program in March, followed by the first rate hike from currently near zero levels.

The decision to tighten monetary policy has hurt precious metals assets as policies are eased, including parts of the US stock market and bitcoin. So, LUNA appears to have caught up with Bitcoin given the current market turmoil as it is currently posting a 3,200% annual return compared to BTC’s 11.5% gain.

 Source: TradingView

In its short-term history as a financial asset, LUNA’s downtrend has often reached exhaustion as price tests support the 50-week simple moving average (50-week SMA, green wave in chart below). That reserve price is close to $30 at the time of writing.

 Source: TradingView

Meanwhile, on the daily timeframe chart, LUNA has been testing the 200-day exponential moving average (200-day EMA) for a possible recovery. If that happens, LUNA’s next upside target appears to be near $75 as illustrated in the chart above.

Conversely, a decisive move below the 200-day EMA could trigger an H&S setup towards $25.

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