Chainlink’s bullish momentum hit a brick wall at $20 per LINK token, causing the previously unstoppable asset tumbling by as much as 25% in two days. After over 5,000% returns over the last two years, profit-taking may have only just begun. Now that Chainlink has started to fall, how deep can the correction go?
25% Crash In 48 Hours: Is The Unstoppable Chainlink Rally Coming To An End?
The cryptocurrency market hasn’t been the same since Chainlink entered the game. The altcoin went from relatively unknown, to nearly unseating Ripple from the top three ranked assets alongside Bitcoin and Ethereum.
As hot as the decentralized finance trend is today, the decentralized oracle’s uptrend has been one for the record books. Over the last two years alone, the asset is up well over 5,000%.
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Stories of early investors retiring from the unstoppable rally are common. But as crypto investors have learned the hard way in the past, what goes up, must eventually come down.
Assets don’t move up in a straight line forever, although Chainlink has done its best attempt to put that theory to rest. After recently breaking through its former all-time high in early July, Chainklink went into full price discovery mode, reaching as high as $20 per token at its peak.
The parabolic rally from July 1 to the local top, brought investors as much as 340% ROI. But with such substantial returns and a correction starting, profit-taking could pick up in severity with so many investors sitting in profit.
But how deep can the Chainlink correction go?
LINKUSD Weekly Technical Analysis Indicators: Parabola, Wedge, S/R Levels | Source: TradingView
Bearish Signals Call For Deep LINKUSD Correction, Or Will Bulls Push On Higher?
After taking off from $4, Chainlink rarely returned to retest resistance as support. With the parabolic curve (blue) almost fully breached and very little remaining runway, signs are starting to point downward for LINKUSD.
In addition to the parabola breaking, an ascending wedge pattern has potentially formed on weekly timeframes, pictured in the red dotted lines.
The two immediate weekly support levels lie at roughly $7 where Chainlink paused momentarily before taking another run, and at $4 where the parabola kicked into extreme gear.
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While $4 may seem like a severe and overly bearish target for Chainlink, the asset topped $20 and could fall to $4. Bitcoin’s parabola breaking from $20,000 resulted in a fall to $3,200 when it was all said and done, further than what’s estimated for Chainlink’s correction.
Data doesn’t lie, and while Chainlink’s story certainly has been different over the last two years, even experienced chartists like Peter Brandt regularly call for 80% or more for a drop after a parabolic advance ends.
LINKUSD Weekly Technical Analysis Indicators: TD, Bollinger Bands, ADX, RSI | Source: TradingView
Technical analysis indicators also clearly demonstrated just how overheated and much overdue LINKUSD is for a correction.
The TD Sequential indicator is on a 13 sell setup, indicating extreme trend exhaustion on weekly timeframes. There’s also a massive bearish divergence across over a year of price action on the Relative Strength Index.
The Average Directional Index shows an extreme high trend strength reading, however, this can also signal a reversal is near, or underway. The ADX also shows the green Directional Movement Index line crossing through the ADX indicator itself.
The last time this crossover happened, a deep, 66% drop took place. Another 66% drop would take LINKUSD to the first listed target at roughly $7, while the full 80% drop would hit closer to $4.
Lastly, Chainlink weekly candles are working on closing back inside the Bollinger Bands after a breakout and close above. In other instances, it resulted in a sharp drop.
Did some quick analysis of #chainlink's network growth rate and historical deviations in price put $LINK at $32 by end of year, but that price would not be sustainable. Investors who buy at high levels risk losing 50% of their investment or more. Most growth priced in already.
— Timothy Peterson, CFA CAIA (@nsquaredcrypto) August 9, 2020
Signs are stacking across multiple timeframes against Chainlink rising further – for now. A correction at this point could be healthy, helping it reach targets of $32 by the end of the year as some analysts predict. Or like it has done in the past, it could continue to defy all odds and sell signals, and keep on setting new highs.
