LUNA January Trade Analysis and Current Outlook
LUNA Trade Review
LUNA had an epic parabolic move the last couple of months. If we took a step back and looked at the weekly or monthly timeframe, any experienced trader would tell you LUNA was overextended. But that doesn't mean it can't go higher in the coming days or hours; what it does mean, though, is to keep your eye on blow-off top or trend reversals on the lower time frames. There were 2 red flags that told us we likely hit a temporary top.
1st Red Flag
The first sign that LUNA topped out was when the 4 hours broke bullish to all-time highs and had no follow-through. Usually, when an equilibrium pattern breaks to all-time highs, shorts get stopped out, and bulls buy the break. In other words, we would expect the price to follow through and the volume to increase. However, this didn't happen. The price got rejected immediately and sold off, meaning that there is was no bull interest at that level. Everyone that wanted to buy has already bought.
2nd Red Flag
The 2nd red flag was the bounce with low volume developing into a pattern known as an ascending wedge. An ascending wedge is a bearish pattern that often breaks bearish, especially during bear markets. Given the low volume of the bounce and the size of the initial sell-off, we should be keeping an eye on the wedge to break bearish, since that is the most likely outcome.
Outlook
Laddering in between $70 to $63, expecting a daily bounce to happen sooner than later. I used Bitcoin's daily RSI level to determine entry points since it's clear that LUNA price movements are currently correlated with Bitcoin. The probability of a daily bounce is relatively high because we are still in a bull trend on the weekly, and Bitcoin is presently oversold on the daily timeframe. Though it's impossible to know for sure if have seen the bottom, the size of bounce will be very telling. The last thing we want to see as a bull is a weak bounce or sideways trading in the next few days as Bitcoin's daily RSI cools off because the probability of downward continuation would significantly increase.
Trade active:
If you're a trader, you should scale out some of your positions to lock in some gains; so that you can at least move your stop up to your entry-level and get a break-even.
Trade closed: target reached
As seen here, Bitcoin Daily RSI hits oversold for the first time since the May Crash in 2021. It's certainily possible for us to go lower but it's unlikely imo barring a cascading liquidation event due to high leverage.
Bitcoin is also currently sitting on it's diagonal support line going back to October 2020. I personallly don't value this support line that much in this set-up but I am sure there are many that are watching it.