Polkadot (DOT) is approaching an important support level, a bounce from this level or a breakdown will determine the future trend.
Weekly outlook
DOT price broke out of a descending wedge pattern in January with a large bullish candle, which also helped it break through the $5.6 level, the 20-week MA, and approach the long-term resistance zone at $7.3.
After an initial correction, DOT successfully flipped the previous resistance into support and formed a bullish engulfing candlestick pattern (blue arrow). However, the price was once again rejected by this resistance zone and is now testing the $5.6 level and 20-week MA. Since the bulls successfully defended this level last time, they may do so again.
A bounce suggests that the price will consolidate within the $5.6-$7.3 range for a while longer. On the other hand, a break below would cause the price to drop to a yearly low at $4.2.
Since the RSI indicator has created significant bullish divergence before the increase earlier this year, this decline is likely a correction in an upward trend. Therefore, the likelihood of a bounce from this level is higher.
Short-term recovery
Technical analysis from the 4-hour chart shows a more bullish outlook. DOT has been in a descending parallel channel since reaching a local high of $7.9. This is a corrective pattern and usually leads to a breakout in most cases.
The RSI indicator supports this possibility by creating significant bullish divergence. In addition, the price is approaching a strong support level at $5.6, formed by a horizontal support zone and the 0.618 Fib retracement level of the entire upward movement.
Therefore, DOT is likely to bounce from this level and break out of the channel. If so, the nearest target for an uptrend is the horizontal resistance zone at $6.7.
On the other hand, a break below the support level will cause the price to quickly drop to the support line of the channel at $5.
Conclusion
Overall, the most likely outlook is that DOT will recover from the $5.7 support level and continue to consolidate within the $5.7-$7.3 range for a while longer. Breaking below support will cause the price to drop to a yearly low at $4.2.
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