Litecoin (LTC) has rebounded 130% to nearly $100 after falling near $40.50 in June 2022. Main reasons include increasing risk sentiment and euphoria around the August 2023 Litecoin halving.
However, technicals indicate that LTC could wipe out most of these gains in the coming months.
The price of LTC is painting a giant bear flag
Litecoin stands to reduce gains mainly because of the giant bear flag in the weekly char.
A bear flag is a bearish continuation pattern that occurs when price joins an ascending parallel channel after experiencing a strong downtrend. It was decided after the price fell below the lower trend line with increasing trading volume
Litecoin has been painting the same pattern since early June 2022. Before that, the LTC/USD pair has experienced a 70% price correction from $130 to $40.50. Thus, from a technical perspective, it will continue the downtrend if the price falls below the lower trend line.
As a rule, the move of the bear flag will cause the price to fall to the extent of the previous decline. Applying the same setup for Litecoin brings the bear flag down target to almost $30.50, or 65% lower than the current LTC price.
Litecoin price “fake head”?
As mentioned earlier, the recovery of the Litecoin price mainly happened in line with the same movement in the market that was at risk due to cold inflation.
For example, the Nasdaq-100 stock market index has risen approx. 15.50% between October 2022 and January 2023. Additionally, Bitcoin (BTC) has rallied more than 50% since November 2022 below $15,500.
The weekly correlation coefficient between Litecoin and the Nasdaq-100 was mostly positive at 0.35 on January 27.
But many analysts, including Mark Haefele, chief investment officer at UBS Global Wealth Management, have noted that the ongoing risk rally could be a “false head.” In simple words, the continuous rally of Litecoin, under the influence of risk-taking partners, may not last long.
Independent market analyst Capo of Crypto as well agreedrecord:
“How to move up, way [higher-timeframe] resistances are being tested… it clearly seems to be cheated, not the real demand. Once again, the biggest bull trap I’ve ever seen.”
Bullish scenario for Litecoin
However, not everyone is bearish on risk assets such as Litcoin. Popular market analyst Rekt Capital understand Litecoin rises to $160 in the coming week, citing monthly chart setup as below.
In particular, the chart shows that LTC price is experiencing a strong rebound movement after testing multi-year upward trendline resistance in the $40-$50 area, which could be suitable for a further uptrend to the $120-$160 range.
This upward target previously acts as support and resistance. Clearing this key resistance can cancel a bear flag setup, which happens 54% of the time according to research by veteran investor Tom Bulkowski.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.