Stellar (XLM) Price Faces 35% Correction as Death Cross Flashes Warning

Key Takeaways

• After a 21.75% YTD decline, a three-drive ABC correction and death cross suggest another potential XLM decrease.
• The Sharpe ratio shows that XLM’s price currently has a poor risk-adjusted performance, which is bearish.
• The daily chart shows a head and shoulders pattern, indicating that XLM’s value risks falling toward $0.22.

Contrary to its performance during the last quarter of 2024, Stellar’s (XLM) price has declined by 21.75% year-to-date (YTD).

As a result, XLM’s price trades at $0.33. Amid this decline, XLM price has flashed another that threatens to lower the altcoin.

Historically, this sudden pattern leads to an extended correction. As bearish momentum builds, here is why another crash may be inevitable.

XLM Further Downtrend Ahead

On the daily chart, XLM price has completed a three-drive ABC correction pattern.  As seen below, the second wave (B) ended at $0.50 while the third wave (C) fell to the same corrective level at $0.33 as the first wave (A).

Following this decline, the 20-period Exponential Moving Average (EMA) has crossed below the 50 EMA (yellow). The EMA is a technical indicator that measures trends.

When the shorter EMA crosses above the longer one, it is a golden cross. In that case, the price can trade higher.

But in this case, the 50 EMA (yellow) has crossed above the 20 EMA (blue), which is termed a death cross, and indicates a bearish trend. Due to this position, XLM price might undergo a five-drive ADCBE Elliot Wave correction.

If validated, XLM might face a false breakout toward $0.50, which could lead to another decline below $0.30.

Not Currently Worth the Risk?

Furthermore, Stellar’s 90-day Sharpe ratio has dropped from 4.21 to 3.21 within the last month. The Sharpe ratio measures a cryptocurrency’s return relative to its risk. This data can help determine whether higher returns justify the added volatility.

A higher Sharpe ratio indicates better risk-adjusted performance. However, when the ratio drops, it indicates a poor risk-to-reward balance, which seems to be the case with XLM prices.

If sustained, this suggests that the token’s returns may not compensate enough for the current market volatility.

Beyond that, the altcoin’s Open Interest (OI) has dropped below $100 million. OI represents the total number of open contracts in a market and changes based on net positions.

When price and OI increase, it indicates that buyers are more aggressive than sellers, leading to an overall increase in net positions. If sustained, this pushes the price higher, as it happened during the rally, to $0.60 in November 2024.

However, when OI falls, it means participants are closing positions or reducing their exposure. Since XLM’s price is also falling, market participants are losing confidence, potentially leading to further selling pressure and continuing the downtrend.

Bearish Trend Confirmed

Another look at the daily chart shows that the XLM price has formed a head-and-shoulders pattern, which impacted the decline to $0.33.

The head and shoulders pattern indicates a reversal from a bullish trend to a bearish one. It consists of three peaks: the left shoulder, the head (the highest peak), and the right shoulder, which is typically lower than the head but similar in height to the left shoulder.

A break below the neckline (a line drawn through the troughs between the shoulders) confirms the reversal and indicates the potential for a further downtrend. In addition, the Relative Strength Index (RSI) reading has dropped below the 50.00 signal line.

This indicated that the momentum around XLM is bearish. If this trend continues, XLM’s price might drop by 35%, possibly driving it down to $0.22.

Alternatively, if the XLM price breaks above the neckline of the head and shoulders pattern at $0.38, this correction might be invalidated.

If that is the case, then the altcoin might bounce to $0.52.