ADA price has seen sharp recoveries during bear markets in the past with many turning out to be bull traps.
Cardano (ADA) price climbed from $0.48 on May 30 to as high as $0.68 on May 31—a 45% rally in less than 48 hours. But ADA/USD failed to extend its rally further upward and dropped by almost 13.75% from its weekly high.
Cardano's price retreated sharply on June 1, giving up a portion of the gains secured in the previous two days. The question now arises whether the ADA/USD pair can extend its recovery trend, especially as it trades almost 80% below its September 2021 peak of $3.16.
Interestingly, the downside retracement began after ADA tested its 50-day exponential moving average (50-day EMA; the red wave in the chart below) as resistance. Also, the pair moved lower in tandem with a broader correction sentiment across riskier assets, including Bitcoin (BTC) and the S&P 500 (SPX).ADA/USD daily price chart. Source: TradingView
Now, the Cardano token risks a further price correction, according to the Digital Trend, a financial analysis contributor at SeekingAlpha, noting that ADA has seen sharp price rebounds in the past that turned into bull traps, adding:
"In March, we saw ADA go from south of $0.80 to over $1.24 in a couple of weeks. This, to me, looks like another fake-out."
Several fundamental factors also support a bearish outlook. On June 1, the Federal Reserve will begin unwinding its $9 trillion asset portfolio, likely creating more headwinds for risk-on assets, Cardano included.
1/16— Adam Cochran (adamscochran.eth) (@adamscochran) June 1, 2022
Today it begins.
So what does it mean? Is it a straight down market? Do we know its all good if nothing bad happens the first day?
How do you navigate this?
"I don't think we know the impacts of QT [quantitative tightening] just yet, especially since we haven't done this slimming down of the balance sheet much in history," Dan Eye, the chief investment officer of Fort Pitt Capital Group, told Market Watch, adding that removing liquidity from the market would "affect multiples in valuations to some degree."
From a technical perspective, Cardano could continue its recovery trend in June due to a bullish continuation pattern.
ADA has been consolidating inside what appears to be a "bull pennant," confirmed by the price fluctuating inside a triangle structure following a massive move upside, called "flagpole."
As a rule, a bull pennant resolves after the price breaks above its upper trendline and rises by as much as the flagpole's height.ADA/USD hourly price chart featuring 'bull pennant' setup. Source: TradingView
In other words, a $0.77 bullish target in June, up more than 25% from June 1's price.
ADA has been painting a similar bull pennant setup against Bitcoin, raising the chances of an uptrend for the ADA/BTC pair in June.ADA/BTC hourly price chart featuring 'bull pennant' setup. Source: TradingView.com
As a result, ADA/BTC's decisive breakout above the pennant's upper trendline could have it rise toward 0.00002355, up 23% from June 1's price.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.