Key Takeaways
According to the 4-hour chart, XRP formed a bull flag between Jan. 13 and 19. A bull flag is a bullish pattern characterized by two rallies separated by a brief consolidation period.
The pattern forms when a sharp, almost vertical price spike creates the “flagpole,” followed by a pullback with parallel upper and lower trendlines that form the “flag.” The flag typically indicates a continuation of the uptrend once the price breaks out above the upper trendline.
As seen below, XRP sustained the rally after breaking out of the upper trendline, which led to the price jumping to $3.31 earlier today.
But as of this writing, the altcoin’s price is on the verge of dropping below the trendline, signifying that the previous breakout was a bull trap.
A bull trap is a temporary reversal that hints at a sustained uptrend. This creates a false sense of optimism, prompting long positions. However, once the price starts to drop again, the decline extends.
A further assessment of the 4-hour chart shows that the Moving Average Convergence Divergence (MACD) has dropped to the negative zone. The drop in the MACD reading indicates bearish momentum and validated the bull trap thesis.
If the momentum stays bearish, the XRP rally could be completely negated, and the price could fall below $3.
Analysis of the daily chart also suggests a similar outlook. On the mentioned timeframe, the Money Flow Index (MFI) has dropped from its peak on Jan. 17.
The decline in the MFI reading indicates that the buying pressure around XRP is no longer at the height it was last Friday. Hence, the altcoin’s value might be subject to a price decline.
In that case, the XRP price is likely to fall to $2.29 at the 0.618 Fibonacci retracement level. If selling pressure intensifies, it could drop below $2 to the 0.382 Fibonacci level at $1.60.
However, if the token rises above the upper trendline of the bull flag pattern, this correction might not happen.
In that case, the XRP price could climb to a new all-time high and surpass $4.