Polkadot’s (DOT) 20% Price Decline Wipes Out Expected Bullish Pennant Breakout

Key Takeaways

• Polkadot price has broken below the support line of the bullish pattern on the daily chart.
• Funding rate is negative, implying that shorts are aggressive, and DOT decline could extend.
• The RSI shows bearish momentum, indicating that DOT price could fall below the $4 mark.

Polkadot (DOT) has experienced a  20% decline in the last seven days, as its price fell from $6.50 to $4.82.

This decline has invalidated the bullish setup that once signaled a potential rally. While the unexpected downturn is due to several reasons, DOT price has dropped below several support levels.

As a result, the token is now under pressure, and indicators hint at a prolonged bearish phase. Here’s what the latest data suggests.

Polkadot Bears Take Over, Breakout Fades

Polkadot’s price hinted at a double-digit rally about two weeks back after the cryptocurrency formed a bullish pennant on the daily chart. A bullish pennant is a continuation pattern that indicates the potential for further uptrend.

It appears after a strong price rally, followed by a brief consolidation phase in which the lower support and upper resistance lines converge.

According to the chart below, DOT’s support and resistance lines converged at around $7.12. However, instead of breaking above the neckline to validate the bullish breakout, the altcoin cratered and went the other way.

A closer look at the image below also shows that support existed at $5.95. However, Polkadot bulls could not defend this region, leading to another breakdown below the $5 mark.

Furthermore, based on the funding rate reading, the price action seems to have influenced traders’ sentiment around the token.

According to Santiment, DOT’s funding rate has dropped to the negative region at -0.002%. The funding rate is the product of the difference between an asset’s perpetual price and its spot price.

When it is positive, it means that longs (buyers) are paying shorts (sellers) a fee to keep their positions open. In this case, the broader sentiment is bullish.

Since the funding rate is negative, short sellers are paying loans. The declining price suggests that shorts are profiting from their positions.

Therefore, If this trend continues, it could accelerate the downward pressure, pushing the altcoin’s price even lower.

DOT Price Fall to Continue

Looking at the daily chart again, the Relative Strength Index (RSI) validated this bearish bias. When Polkadot’s price climbed from $3.80 to $10 between November and December 2024, the RSI reading followed in the same direction.

This indicated bullish momentum around the token. However, as of this writing, the indicator’s rating has fallen to 31.64, signifying bearish momentum around it.

Should this trend remain the same, the DOT’s price could crash to $3.59. However, if the RSI reading reaches an oversold region and buying pressure increases at that point, Polkadot could see a bullish reversal.

The price might jump to $8.57 in that scenario at the 0.618 Fibonacci level. Should accumulation get more aggressive than anticipated, DOT might climb as high as $11.65.