Cardano price eyes $3, but ADA chart fractal hints at a potential 40% correction
The ADA/USD exchange rate has moved further into its “overbought” area, suggesting that a trend correction might follow suit.
Cardano blockchain’s native asset, ADA, reached a new record high on Monday as investors pinned hopes on an upcoming smart contracts feature that expects to boost the cryptocurrency’s adoption.
The ADA/USD exchange rate topped out at $2.899 around 9:00 am UTC, raising anticipations that it would easily close above $3 in the coming sessions.
Many analysts, including pseudonymous chartist PostyXBT, noted that the Cardano token had entered a “price discovery mode.” Meanwhile, David Gokhshtein hinted that ADA/USD might continue its bull run until Sep. 12, the day Cardano is going to integrate a smart contracts feature to its blockchain via the “Alonzo” upgrade.
In detail, the Alonzo upgrade introduces a native smart contracts development language called Plutus to the Cardano ecosystem. Plutus is already available for testing and brings functional programming to smart contract creation to everyday users.
As a result, ADA bulls anticipate the token’s adoption to boom in the sessions ahead as Cardano attracts decentralized application developers — operating in the emerging decentralized finance and nonfungible token sectors — to its smart contracts ecosystem.
Overbought risks
But Cardano’s technical indicators predict a short-term shock, something that might have the ADA/USD corrected lower by as much as 40% despite maintaining its long-term bullish outlook.
The Cardano token’s daily relative strength index (RSI) has ventured deeper into overbought territory, at around 83. Traders consider an RSI reading above 70 as overvalued. As a result, it prompts them to sell the asset to secure maximum profits.
ADA/USD daily chart featuring RSI correction fractal. Source: TradingViewFor instance, a run-up in ADA/USD rates in the first quarter of 2021 pushed its RSI reading above 90. Later, the pair started consolidating sideways while maintaining support near its 50-day exponential moving average (50-day EMA; the scarlet wave).
Related: Cardano defies Peter Brandt’s 90% crash warning, ADA price doubles to new high
ADA’s price now sits atop 114% month-to-date and 1,511% year-to-date profits. At the same time, an oversold RSI pictures an interim profit-taking scenario. So if the Q1/2021 fractal repeats, ADA’s next line of support comes to be near its 50-day EMA at $1.73, almost 40% below the current prices of $2.83.
But a correction won’t necessarily exhaust Cardano’s long-term bullish outlook. Given the potential success of its Alonzo upgrade, the project could end up attracting more speculative upside bids for its ADA token. As a result, the ADA/USD exchange rate expects to remain in price discovery mode.
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