As a seasoned crypto investor with a knack for recognizing market patterns and understanding their underlying drivers, I can’t help but observe the recent correction in Dogecoin (DOGE) with a mix of intrigue and caution. The 9.5% drop from its local high is a stark reminder of the volatile nature of this memecoin, yet it’s not entirely surprising given the overbought condition signaled by its RSI reading.
After experiencing a significant surge of 48% in early October, Dogecoin (DOGE) is now going through a small correction. As of October 23rd, it has decreased by more than 9.5% from its recent peak of $0.149 set just two days prior.
Over the past 24 hours, there’s been a 6.5% drop in DOGE’s price, causing it to reach $0.135 – its lowest point in a week. This decrease seems to be due to investors cashing out their profits, while also showing signs of growing caution or fear (risk-off sentiment). These factors have been contributing to the increased selling pressure.
DOGE drops after turning “overbought”
After DOGE’s daily Relative Strength Index (RSI) surpassed the 70 mark, which usually indicates a state of being overbought, its price began to decrease. This overbought condition often leads to a phase of adjustment or stabilization.
Essentially, traders probably started taking their gains since they foresaw a temporary high in DOGE’s price. The pessimistic reaction from traders towards DOGE, given its overbought state as indicated by the Relative Strength Index (RSI) above 70, follows a pattern similar to past situations where such an RSI crossing led to significant price drops.
In late September, I observed a notable decrease of approximately 23.50% in Dogecoin’s price following an entry into the overbought zone on its daily RSI, suggesting a potential correction.
Golden cross fractal hurts Dogecoin price
The current decrease in Dogecoin’s price appears to be happening around the same time as potential formation of a ‘golden cross’ among its significant exponential moving averages (EMA). Historically, this event has been followed by more significant price declines in recent times.
In simpler terms, a ‘golden cross’ happens when a financial asset’s temporary average price line (short-term) intersects and goes above its longer-term average price line. This crossover is often interpreted as a positive sign suggesting a possible extended period of rising prices or an uptrend.
In contrast to other cases, a golden cross in Dogecoin doesn’t directly trigger purchasing. Rather, the expectation of the upcoming crossover typically sparks early buying, leading to overbought market conditions.
It appears that a similar pattern is recurring, as the previous golden cross formations in EMA (Exponential Moving Average) occurred in November 2022 and December 2023, which were followed by drops in price approximately 18.5% and 13.8%, respectively.
Starting from October 23rd, Doge’s 50-day Moving Average (EMA) is getting close to intersecting with its 200-day EMA, primarily due to a significant 48% increase it experienced earlier this month. Yet, since the golden cross is almost here, initial investors might be cashing out their gains, thereby fueling the ongoing downtrend.
If the selling pressure persists, it’s probable that Dogecoin (DOGE) will reach a potential low of approximately $0.111 by the end of November, as suggested by its current moving averages.
Rising US yields saps appetite for memecoins
The continuing drop in Dogecoin’s value coincides with an increase in U.S. Treasury yields, which suggests decreasing chances of a recession and heightens the possibility that the Federal Reserve could reduce the speed at which it reduces interest rates over the next few months.
On October 23rd, the yield on two-year Treasuries surpassed 4% for the first time in two months, marking a new high. Similarly, the 10-year benchmark yield hit 4.24%, which is its highest point in the past three months.
In simpler terms, when interest rates go up (yields rise), it often indicates an improvement in the economy. This improvement might make people less interested in investing in riskier assets such as cryptocurrencies like Dogecoin because they can now earn money with safer investments that offer returns (yield-bearing assets). Consequently, Dogecoin has been under pressure due to this short-term shift in investment preferences where the potential gains from safer assets become more attractive.
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2024-10-23 15:11