The price of the Lido DAO (YES) fell sharply a day after its key momentum oscillator moved into “overbought” territory.
LDO undergoes an overbought correction
The price of LDO plunged to $1.04 on July 16 from $1.32 on July 15, a drop of more than 20%. The token’s sharp decline is inspired by several bearish technical indicators, including its daily Relative Strength Index (RSI) and its 100-day exponential moving average (EMA).
LDO’s latest plunge came after rallying more than 150% in just two weeks, a move that simultaneously pushed its daily RSI above 70 on July 15, making it overbought.
A Overbought RSI signals that the recovery may be coming to an end while preparing for a short-term pullback.
Meanwhile, further downside clues for the Lido DAO token came from its 100-day EMA (the black wave in the chart above) near $1.30, which prevented LDO from extending its rise. 150% price.
In its early days, the price action resembled LDO’s correction in April 2022, after its RSI broke above 70 for the first time in history. Notably, the Lido DAO token had suffered a price drop of more than 90% to hit $0.39, its all-time low, in mid-June 2022.
This increases the potential for LDO to repeat the April-June 2022 correction, but with no exact bottom in sight. That said, the token’s intermediate downside target appears near its 50-day EMA (the red wave) at $0.90, down 20% from today’s price.
On the other hand, a break below the 50-day EMA would risk sending the LDO down to around $0.75, which coincides with the 0.618 Fib line on the Fibonacci retracement chart taken from a low of $0.39 to a high of $1.31.
Ethereum 2.0 expected in September
On July 15, Ethereum developers confirmed that their network’s long-awaited transition to proof-of-stake from proof-of-work, dubbed “the merger” or “Ethereum 2.0”, would tentatively occur on September 19.
LDO jumped almost 25% on the day of the announcement due to its close ties to Ethereum.
In particular, LDO serves as a governance token for Lido, a liquid staking platform that has locked over 4.13 million ETH (worth around $5 billion) in the official smart contract of Merge on behalf of its users.
After the announcement of Ethereum, the number of Ether deposited in the fusion smart contracts via Lido have increased.
With Lido currently the largest provider by total staked value, a successful launch of Merge could bring more users to Lido, which, in turn, could drive demand for LDO tokens.
Therefore, a technical correction in LDO price could follow a rebound towards the 100-day EMA if Ethereum’s plans to become a proof-of-stake chain arrive on time.
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