Is a drop back to $110 expected?

AVAX has had a phenomenal past seven days. The alt is not only the highest weekly gainer among the top 10 coins by market cap but also one of the highest percentage gainers over the last 24 hours. On the charts, AVAX established a demand zone between $76-$78 and embarked on a near 60% upwards run. However, this move has made AVAX susceptible to profit-taking. Overbought readings on both the RSI and Bollinger Bands suggest that a near-term retracement could be forthcoming.

AVAX 4-hour time frame

Over the past week, AVAX’s value has risen by nearly 60% after snapping a 1 month low on 13 December. The Fibonacci Extension tool was applied to the alts retracement from $117 to $101 during this phase in order to identify potential target areas. While the 50% Extension around $122 could be achieved over the coming hours, the 61.8% Fibonacci Extension was tricky to overcome. A supply zone was established at the aforementioned level during early-December, after which AVAX suffered a 40% decline in value.

Ideally, AVAX needed to stabilize before retaking this territory. Near-term support levels of $110.9, backed by the 20-SMA (red), and $101.3 can allow new longs to be introduced. Once the 61.8% Fibonacci level is toppled, bulls can set their sights at a new ATH considering the lack of strong resistance zones between $127-$143.

Indicators

Now the 4-hour RSI was close to overbought territory. Such readings usually present a sell signal as the asset is considered to trade above its intrinsic value. Similarly, the Bollinger Bands, which are a measure of market volatility, presented similar readings. A move towards the upper band usually prompts a sell-off. If the price slips below the signal line, losses can even stretch as low as the lower band.

Conclusion

AVAX was set for a 7%-15% sell-off following overbought readings on the Bollinger Bands and RSI. However, expect AVAX to bounce back from the abovementioned support areas and initiate a next leg forward.