Why price can stabilize here before $3 is breached

MATIC’s price action has been extremely bullish over the last two weeks of trade. Percentage gains in 14 days have amounted to nearly 70% as the alt formed a new ATH at $2.92, just shy of the $3-mark. This move came soon after one of the world’s largest decentralized exchanges Uniswap passed a proposal to be deployed on the Polygon network. As of 27 December, Uniswap has a Total Value Locked of $8.3 Billion, bested only by Curve Finance which tops the chart by this metric.

Renewed price discovery is now a reality with more retail traders flocking into the Polygon network. However, a short-term pullback was expected before MATIC cements ground above the $3-mark. Bearish divergences along the RSI and MACD indicated that bulls actually were losing market momentum after MATIC hit record levels. At the time of writing, MATIC traded at $2.81, up by 3% over the last 24 hours.

MATIC 4-hour time frame

MATIC has begun to show signs of exhaustion after its target was met post a rising wedge breakout. While two red candles are barely enough to expect a dip, MATIC’s indicators suggested that there is more to follow. The 4-hour RSI made two lower peaks and identified a bearish divergence.

These divergences are formed when an index is not in conformation with the price action, which generally triggers buying or selling behavior. The same was also spotted on the MACD, which inched lower over the past few trading sessions. An unwanted crossover between the fast-moving line (blue) and Signal line (orange) would throw more weight behind a pullback.

Fortunately, MATIC has a few defensive resources at its disposal. Using the Fibonacci Extension tool and MATIC’s decline from $2.73 to $2.42, immediate targets and support levels were outlined on the chart. MATIC’s strongest chance of a bullish reversal was between 61.8% and 50% Fibonacci Extension levels since they also coincided with the 20-SMA (red). A deeper sell-off can be counteracted at the 38.2% Fibonacci area.

During the next leg forward, MATIC would target the 161.8% and 200% Fibonacci Extension present at $3.16 and $3.33, respectively.

Conclusion

MATIC was expected to ease between $2.8-$2.65 as the buying frenzy tapers down. Buy trades can also be placed at these levels. However, observers should be cautious of a close below $2.53 at any given time as a down-channel breakdown could lead to excessive bleeding.