In technical analysis, there’s an adage that goes, “buy the rumor; sell the news.” We’re seeing this nugget of wisdom in play out in Stellar (XLM).
On Monday, the Stellar Development Foundation announced that it burned more than half of the Lumens in circulation. Supply went from around 105 billion to 50 billion. From a basic supply and demand standpoint, the reduction of coins in circulation should be extremely bullish for the cryptocurrency.
However, the crypto token is not reacting as expected. While Stellar posted gains of 10% Tuesday, it eventually succumbed to profit-taking. Those who bought the rally are very likely sitting on significant losses.
A closer look at Stellar’s chart reveals that most of the traders who bought Tuesday were whipsawed. The fear of missing out (FOMO) likely drove them to smash the buy button as they expected the cryptocurrency to sharply rise due to the supply halving of the supply. However, the rally quickly faded as interest in the cryptocurrency dropped.
A look at the hourly chart shows that most of the gains were made immediately after the announcement of the coin burn. In two hours, Stellar Lumens was up by over 25% as the coin went from $0.07023800 to $0.08795500. Since then, the cryptocurrency has been bleeding slowly. Decreasing volume is a sign that bulls are no longer interested in buying at current levels.
Those who bought after the first hour of the pump are most likely in deep losses.
The good news is that the losses may be temporary. We spoke to margin trader Crypto Krillin about the long-term prospects of the coin. The trader sees something bullish developing on Stellar as he said,
[The] chart looks good on higher time frames and the 50% token burn is certainly going to help.
But well, most altcoins look great now.
Crypto Krillin is not the only one bullish on the cryptocurrency. Trader Loma was fortunate enough to catch the pump. The trader admitted that FOMO’ing kicked in. However, the analyst was savvy enough to take profits before the dump.
After selling all positions, the analyst is waiting for the selloff to be over. Loma expects XLM to regain its bullish tone.
The fear of missing out happens even to the best of us. However, the Stellar craze over the last 24 hours suggests even incredibly bullish news do not lead into an unstoppable rally. On the contrary, it was likely taken as an opportunity by the smart money to sell the news.
Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin, Stellar Lumens, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.
This article was edited by Sam Bourgi.