Avalanche (AVAX), the native token of the Avalanche blockchain platform, has been one of the best-performing cryptocurrencies in the past month, surging over 150% to reach a new all-time high of $42 on December 12, 2023. However, some technical and fundamental indicators suggest that the AVAX price rally might be losing steam and could face a significant correction in the near future.
One of the main drivers of the AVAX price rally was the breakout of a falling wedge pattern on the weekly chart. This bullish reversal pattern indicates that the downtrend that started in September 2022 has ended and a new uptrend has begun. The breakout point was around $20.65, which had been a strong resistance level for over a year. The theoretical target of the falling wedge pattern is the height of the wedge projected from the breakout point, which is around $30.
AVAX/USDT 1-week chart
The AVAX price reached this target on December 5, 2023, and continued to rally higher, breaking above the $35.44 level, which is the midpoint of the 94% bear market rally that occurred between November 2021 and September 2023. The next resistance level was at $40, which is a psychological round number and also coincides with the 1.618 Fibonacci extension level of the previous downtrend. The AVAX price briefly surpassed this level on December 12, 2023, and hit a new record high of $42.
AVAX Price Faces Resistance and Bearish Divergence
However, the AVAX price rally seems to have encountered strong resistance at the $40-$42 zone, as the weekly candlestick has formed a long upper wick, indicating selling pressure. Moreover, the weekly RSI has entered the overbought territory above 70, suggesting that the AVAX price is overvalued and due for a pullback. Additionally, the weekly RSI has formed a bearish divergence with the AVAX price, as the RSI has made a lower high while the price has made a higher high. This signals a loss of momentum and a potential trend reversal.
AVAX/USDT 1-week chart
If the AVAX price fails to sustain above the $40 level and closes below it on the weekly time frame, it could trigger a bearish reversal and a 30% correction to retest the $27.90 support level. This level is the 0.5 Fibonacci retracement level of the entire AVAX price rally from $9.62 to $42. It is also a previous resistance level that could act as a support level. A breakdown of this level could send the AVAX price down to the $20.65 level, which is the breakout point of the falling wedge pattern and the 0.618 Fibonacci retracement level.
AVAX Price Could Resume Uptrend If It Holds Above $40
On the other hand, if the AVAX price manages to hold above the $40 level and closes above it on the weekly time frame, it could invalidate the bearish scenario and resume the uptrend. In that case, the AVAX price could target the next resistance level at $50, which is a psychological round number and also the 2.618 Fibonacci extension level of the previous downtrend. A break above this level could open the door for further gains toward the $60 and $70 levels, which are the 3.618 and 4.618 Fibonacci extension levels, respectively.
AVAX/USDT 1-week chart
The AVAX price rally has been supported by several fundamental factors, such as the rapid growth of the Avalanche ecosystem, the launch of new gaming subnets, the increased token burn rate, and the upcoming transformation of the Avalanche Web Wallet. However, these factors might not be enough to sustain the rally if the technical indicators turn bearish and the market sentiment shifts. Therefore, investors should be cautious and watch the key levels of $40 and $27.90 for potential trend reversals.
