The price of Polkadot (DOT) has bounced from the long-term support zone and generated short-term bullish signals. However, the direction of the trend in the future remains uncertain.
Key Level
The price of Polkadot (DOT) fell below a descending resistance line since reaching its yearly high at $7.9 in February 2023. During this period, the price broke down below the important support zone at $4.3 and confirmed it as resistance in the week from October 2 to 8 (red arrow).
Since this support zone has been in place for 245 days, breaking below it could trigger a 50% decline to the all-time low support at $2.
However, instead of a significant drop, the DOT price bounced from the long-term support at $3.6, where the 2020 bull market began. The bounce created a bullish engulfing candle in the week from October 16 to 22 (green arrow), signaling strong buying interest at a lower level.
Nevertheless, the DOT price is still trading below the $4.3 level, formed by the descending resistance line and the previous key support zone.
Therefore, to confirm this as a sustainable recovery, the DOT price needs to reclaim the $4.3 level on the weekly timeframe.
Reclaiming this level would create a bear trap and could potentially propel the DOT price quickly to the next resistance zone at $5.7. However, the DOT price could drop 50% to the all-time low support at $2 if rejected.
The weekly RSI is still trading below the descending resistance line, not supporting the reclaiming effort.
Daily Outlook
The daily timeframe shows a more positive outlook. It indicates that the DOT price has broken above a short-term descending resistance line, formed from the local high at $5.7 in mid-July. This is a positive signal, indicating the previous correction has likely ended, and a new uptrend might occur.
Although the price was rejected by the previous support zone at $4.3, the bullish candle formed on October 23 (blue ellipse) was a large bullish engulfing candle and closed above the $4.3 zone.
This shows the return of the bulls, and selling pressure in this area is being absorbed.
The daily RSI has formed a significant bullish divergence before the uptick and is close to the overbought region, supporting the potential for further increase.
Therefore, the DOT price is likely to break above the $4.3 level in the coming days.
Conclusion
While the signals from the weekly timeframe are bearish, the daily timeframe suggests that the DOT price will reclaim the $4.3 level and rise to the next resistance zone at $5.7.
This perspective would be invalidated if the price breaks down below the $3.6 support zone.
Disclaimer: Please note that this article is for informational purposes only and should not be taken as investment advice. As an investor, it is important to do your own research before making any decisions. We are not responsible for any investment decisions you make based on this information. Not Financial Advice.
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