Dogecoin (DOGE) May Signal a Bear Trap Amid Recent Volatility and Renewed Investor Interest

Dogecoin (DOGE) is once again capturing the attention of traders, indicating a potential resurgence in market activity.

• DOGE’s recent sharp correction has reignited its appeal as a high-volatility, short-term investment.

• The memecoin may be quietly setting the stage for a bear trap.

Dogecoin [DOGE] is barking back into the spotlight. After soaring to a three-month high of $0.259 on May 11th, it has pulled back nearly 14% in under a week, drawing attention from opportunistic traders. Over $14.17 million in long liquidations indicates that bears are currently in control, aggressively hunting overleveraged positions. However, this sharp correction may signify more than mere weakness; it could be a strategic setup for the next trading cycle.

Zooming in, this swift drawdown could resemble a classic bear trap setup as DOGE reloads for its next volatility spike.

From bark to bite: DOGE shakes out the weak hands

DOGE’s impressive double-digit pullback can be attributed to a mix of macroeconomic headwinds and on-chain dynamics. At the macro level, risk capital is being reallocated towards stocks, placing crypto into a “pause and digest” phase. Concurrently, Bitcoin [BTC] is trapped in a narrow trading range, which is keeping DOGE on a tight leash.

As COINOTAG notes, this scenario is a classic choppy setup. Nevertheless, where there’s volatility, there’s opportunity, and traders appear to be seizing it. On May 14th, DOGE’s new address count surged to 311,811, a six-month high, signaling renewed retail interest amid this shakeout.

Source: Glassnode

Additionally, Ali Martinez states that DOGE’s structural demand remains resilient, reinforcing COINOTAG’s thesis: the memecoin still possesses significant strength despite the recent pullback. Market psychology plays a crucial role here; if conviction is indeed strong, a retest of the $0.20 support seems unlikely. Once macro fears subside, DOGE could climb back toward $0.30, with market FOMO poised to instigate a new rally.

Bears on thin ice

According to Coinglass, DOGE’s Open Interest (OI) surged to $3.70 billion after reclaiming the $0.25 mark — levels not observed since early January. However, in less than a week, OI fell by $1.05 billion, indicative of a typical deleveraging event that exerts pressure on DOGE’s short-term supply.

Interestingly, Binance’s DOGE/USDT order book reveals a 75.8% dominance of long positions, signaling that bulls are reloading their strategies rather than retreating. Conversely, aggregated exchange data reflects a 52.51% short dominance, indicating a potentially overcrowded bearish sentiment.

Source: Coinglass

This positioning reflects broader market uncertainties. However, if sentiment shifts bullishly, it could create a perfect storm for a short squeeze — with DOGE ready to take advantage of a bear trap rebound. Consequently, Dogecoin’s next move might take the market by surprise, transforming recent shakeouts into major market shifts. The ongoing dip? It could present a golden entry opportunity, with the $0.30 level firmly back on investors’ radar.

Conclusion

In summary, the shifts in trading patterns, along with the recent increase in new addresses, may indicate a pivotal moment for DOGE. As market sentiment evolves, traders should remain vigilant, considering both risk factors and potential rewards. With significant support levels intact, DOGE might be gearing up for a rally that could surprise many. Keep an eye on developments as this highly volatile market continues to unfold.