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The Avalanche (AVAX) cryptocurrency is currently facing significant bearish pressure, with its short-term price dynamics hinging on crucial market indicators.
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Trading at approximately $36.72, recent trends show a marked decline in open interest (OI), indicating waning confidence among traders.
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According to Coinglass, “The inability to sustain projections above $55 in November highlights a concerning trend for AVAX’s price action.”
AVAX faces bearish sentiment with crucial market indicators pointing towards potential downside pressure as the cryptocurrency trades around $36.72.
VPVR indicates strong resistance levels for Avalanche
Recent analysis of the Volume Profile Visible Range (VPVR) reveals a substantial concentration of trading activity around the $40 to $42 levels. This cluster signifies robust resistance, where traders executed numerous buy and sell orders in the past. Despite multiple attempts to ascend past this range during December’s market rally, AVAX met with consistent rejections, further solidifying the bearish sentiment surrounding the altcoin.
Source: Coinglass
On the downside, VPVR has pinpointed a critical support level at $27, confirmed by historical trading patterns demonstrating higher activity during previous accumulation phases. If AVAX breaches this support, it could open the door to further declines, potentially targeting the $25 level. The combination of a failure to maintain momentum above $55 and the development of lower highs and lower lows points toward a persistent bearish trajectory unless a significant market catalyst emerges.
Gauging market participation trends
Recent statistics illustrate a notable decrease in open interest (OI), signaling a drop in speculative trading interest as price levels dwindle. The decline in OI aligns with AVAX’s struggle to maintain bullish momentum above the $55 mark recorded in November.
Source: Coinglass
Typically, a falling OI during a price correction signifies that traders are closing long positions, reflecting uncertainty and bearish sentiment. This trend indicates traders might be adopting a wait-and-see approach, expecting stronger directional signals before re-entering the market.
To reverse the current sentiment, AVAX would need to see an enduring increase in both price and OI. Enhancing OI coupled with an increase past the $40-$42 resistance zone would demonstrate renewed trader confidence. Conversely, if OI continues to decline as prices approach lower support levels, it may further validate bearish momentum, with $27 becoming a focal point for market participants.
Oversold conditions or further downturns?
Examining the daily chart, it becomes evident that AVAX’s Relative Strength Index (RSI) has persistently remained below the neutral 50-level, demonstrating ongoing bearish momentum. Currently, the RSI is around 35, inching closer to the oversold mark of 30.
Source: TradingView
This RSI reading implies diminishing buying pressures, aligning with the observed trend of lower highs and lower lows. While an oversold RSI can occasionally trigger a short-term price bounce, the absence of substantial bullish catalysts indicates that any potential upward movement may be limited in the short run.
If the RSI were to slip below 30, it might attract bargain hunters and lead to a brief recovery. However, failure to establish strength above 45 would likely reinforce the prevailing bearish sentiment, signaling further downward potential. For bulls to regain traction, the RSI must decisively surpass 50 along with a breakout above significant resistance levels, such as $42.
Market sentiment and positioning bias
Current data indicates an increasing ratio of short positions relative to long in the AVAX/USDT market, underscoring the bearish outlook among traders.
Source: Coinglass
As of the latest analysis, the rise in short positions correlates with the larger downward trend and the failure to break past the $40-$42 resistance level. A growing ratio of shorts signifies that traders expect further drops, with many anticipating a breakdown beneath the $27 support barrier.
Nonetheless, significant imbalances in the Long/Shorts Ratio can sometimes produce contrarian signals. An overwhelming number of short positions can trigger short squeezes, whereby the price rises sharply as excess short positions get liquidated, resulting in temporary price spikes.
For a shift towards bullish sentiment, the Long/Shorts Ratio must stabilize, showing a propensity for long position preferences and reflecting enhanced trader optimism. Until this occurs, the prevailing bearish sentiment will likely persist, keeping AVAX’s price action under continual pressure.
Conclusion
The current landscape for Avalanche (AVAX) suggests a challenging period ahead, defined by bearish pressure and critical resistance levels. With key indicators pointing towards a potential decline, traders should remain vigilant to market movements and consider potential entry points carefully. A break above established resistance or increased OI could signal a shift in momentum, while sustained declines could lead to new lows for this cryptocurrency.
