Key Takeaways
Stellar (XLM) has surged by 10% in the last 24 hours, ranking it among the top-performing cryptocurrencies within the top 100 during this period.
However, XLM’s rally appears closely linked to XRP’s performance, as the latter has recorded a nearly identical price increase amid speculation of an ETF approval with Donald Trump coming in as U.S. President.
With bullish sentiment rising building but caution lingering, can XLM sustain its rally?
The correlation between XLM and XRP dates back to 2015, when Jed McCaleb, a co-founder of Ripple, launched the Stellar Lumens project and introduced XLM as its native token.
Interestingly, the fundamentals of Ripple and Stellar are similar, with both focusing on facilitating fast, low-cost cross-border transactions. Since then, the price of XLM has followed the direction in which XRP moves—a pattern that continues to this day.
According to Macroaxis, the correlation coefficient between XRP and XLM is $0.91. This ratio tracks the directional movement of two cryptocurrencies over a 90-day window and ranges from -1 to +1.
Values close to -1 indicate that the assets involved rarely move in a similar direction. However, the reading for XLM indicates that it registers almost the same returns as XRP.
From a technical standpoint, XLM traded within a falling wedge between late November and Dec.31. A falling wedge is a bullish reversal pattern.
It appears from the formations of two descending trendlines. The upper trendline connects the highs while the other connects the lows. As the lines converge, it indicates a breakout to the upside.
According to the 4-hour chart, XLM price broke out of the wedge on New Year’s Day. By Jan. 5, it rallied to $0.48.
A critical look at the same chart shows that the altcoin has completed an ABCDE corrective Elliot Wave sequence. Following the correction which saw XLM price decrease to $0.40, the altcoin has bounced again to $0.48.
But again, it encountered resistance around the same region, and has now decline to $0.45. This decline could also be linked to the Relative Strength Index (RSI) reading.
Earlier today, the RSI reading surpassed 70, which means the token hit the overbought region before the price decrease. Due to this condition, XLM price could continue dropping.
On the daily chart, XLM has surpassed the $0.618 Fibonacci resistance. It now looks ready to flirt with the 0.786 Fib level at $0.52.
But a major hurdle lies at $0.50 that previously dragged the price down to $0.33. As it stands, the volume around the token has dropped, indicating the upward strength is becoming weak.
Should this remain the same, XLM might face rejection and pull back to $0.30.
But if the altcoin breaches the $0.50 resistance with XRP price also climbing, the bearish scenario might be invalidated. In that case, XLM might rally to $0.64.