Potential Price Correction Ahead for Optimism (OP) Amid Bearish Signals and Weak Market Sentiment

• Optimism (OP) is currently exhibiting bearish signals, as technical patterns and on-chain data suggest a looming price correction.

• After a recent uptick, OP’s price has stalled at critical support levels, raising concerns among traders about its sustainability.

• “The head-and-shoulders pattern typically signals reversals, positioning OP for a possible downturn,” notes a COINOTAG analyst.

This article analyses the bearish trends in Optimism (OP), highlighting significant technical signals and on-chain data that indicate a potential price correction.

What’s driving OP’s bearish price action?

The current price action of OP is a clear indication of weakness, especially highlighted by the formation of a head-and-shoulders pattern. This pattern consists of three peaks – the left shoulder, the head, and the right shoulder – with the head forming a significant peak underlining market hesitation.

As of the latest data, OP is trading around a critical support level of $1.12. If this support does not hold, it could trigger a decline to support levels around $1.06 or lower. Investors should remain vigilant and closely monitor these price levels to anticipate potential market movements.

Source: TradingView

What do on-chain signals reveal about OP?

Analyzing the on-chain indicators conveys a more detailed narrative leading to a bearish sentiment for OP. Recent trends show that the net network growth has decreased by 0.87%, indicating a slowdown among new users and a reduction in network activity.

The “In the Money” metric has also dropped by 1.36%, which underscores the diminishing upward momentum. While there is a slight increase of 0.08% in concentration, this does not counterbalance the overall negative outlook highlighted by other on-chain data.

Additionally, a decline of 1.93% in large transactions points to diminishing market sentiment, further affirming the bearish trends facing OP.

Source: IntoTheBlock

Are most investors “In the Money” or “Out of the Money”?

Insights from the In/Out of the Money chart reveal that, at the current trading price of $1.12, approximately 90.74% of OP addresses are classified as “Out of the Money.”

This suggests a substantial number of holders are currently incurring losses, potentially leading to increased selling pressure if the downward trend persists.

Conversely, only 6.55% of addresses are considered “In the Money,” indicating a lack of buying interest at the present price levels.

Source: IntoTheBlock

What does the MVRV Long/Short Difference indicate?

The MVRV Long/Short Difference, currently sitting at -8.75%, serves as another bearish indicator. This ratio shows that long positions are being liquidated more than short positions.

This dynamic indicates trader sentiment is increasingly leaning towards the downside, reflecting a wavering confidence in the market’s ability to rebound and further supports the bearish stance for OP.

Source: Santiment

Is OP heading for a price correction?

The convergence of technical signals, on-chain metrics, and sentiment analysis all highlight that OP is at serious risk of a price correction.

The unmistakable head-and-shoulders pattern, alongside bearish on-chain data and a negative MVRV long/short difference, strongly suggest a forthcoming decline.

Ultimately, if OP is unable to sustain its critical support at $1.12, a further decline into lower price levels seems imminent, increasing the likelihood of a deeper retracement in the short to medium term.

Conclusion

In summary, both technical and fundamental analyses point towards a bearish outlook for OP. Investors should exercise caution and remain observant of market dynamics as the potential for a price correction becomes more pronounced.