Solana (SOL) is facing a decisive test as it battles to hold a crucial demand zone between $85 and $88. After plunging to multi-month lows in recent weeks, the cryptocurrency is now attempting a short-term recovery.
According to CoinMarketCap data, Solana was trading around $87.18 at the time of writing. The TradingView chart analysis shows that if Solana bulls can protect the current price levels, the next major upside target will be the $98-$105 area.
Crypto analyst BitGuru point out that if Solana drops to $85 again, the upside potential of the trend could be delayed as a result of a potential decline to $78-$80.
ETF Outflows Create Further Selling Pressure in Solana
Additional evidence that there is a fragile environment surrounding Solana comes from the institutional side of the coin.
As reported by Market Intelligence Platform Santiment, Solana exchange-traded funds (ETFs) recorded $11.9 million in withdrawals on February 6. The same platform stated that this was the second-largest one-day net outflow in the history of Solana ETFs.
“Historically speaking, significant outflows represent a bottom signal,” Santiment said. It added that SOL has experienced a loss of approximately 62% of its total market capitalization over the last four months.
Santiment believes that traders are close to reaching capitulation, a point where many will begin to buy the dips. Even so, caution still abounds. If investors continue to withdraw from SOL investment products, then buying interest will be limited, especially if the broader markets continue to be uncertain.
Also Read | Solana (SOL) Faces Pressure as ETF Outflows Hit $11.86M
Technical Indicators Display Contrasting Views
Solana is still in a downtrend from a technical point of view. As SOL is currently trading below both the 20-day and 50-day exponential moving averages (EMAs), this confirms the downward momentum. For Solana to create a stable uptrend, it must create a clear trend over both the 20-day and 50-day EMA lines.
Source: TradingView
Although the RSI on the 4-hour timeframe has moved from extremely oversold to approximately 47, indicating a decrease in selling pressure, the RSI has yet to enter into positive (bullish) territory. This means that an uptrend is fragile.
In addition, the overall lack of volume indicates uncertainty in the direction of SOL’s price. The slight increase in buying volume in the $85 area is encouraging. However, the total amount of trading activity has been significantly less than during past rallies.
Important Levels To Watch
Currently, traders are monitoring the $90-$92 resistance zone, which is the first major barrier to a sustained rally by SOL. A successful breakout above this resistance zone should lead to additional gains toward $98 and eventually the $105 region in subsequent trading sessions.
On the other hand, if SOL breaks through the $85 level towards the downside, it would invalidate the bullish thesis and most likely expedite the decline to the $78-$80 region.
Why This Is Important
The success or failure of Solana to hold its current $85 support area as a support level will ultimately indicate if it establishes a firm base on which it will begin to rise again or prepare for another leg down.
Also Read | Solana (SOL) Weekly Structure Resets, Keeping $1,000 Cycle Target on the Table
