XLM's 6% Gain Faces Bearish Pressure, Indicators Signal Reversal

Stellar’s XLM token has experienced a 6% increase over the past week, aligning with the broader crypto market's recovery. At the time of reporting, the altcoin was trading at $0.28. However, a critical momentum indicator is signaling potential trouble, suggesting that the rally might be short-lived. This raises the question: should XLM holders prepare for a decline?

A bearish divergence has emerged with XLM’s Chaikin Money Flow (CMF), indicating weakening buying pressure despite the recent price increase. While XLM’s price has climbed in the past week, its CMF has fallen, remaining below the zero line at -0.10 at the time of reporting. This trend occurs when an asset’s price rises while its CMF declines, signaling that fewer investors are supporting the rally with actual capital inflows. As a result, the uptrend may be unsustainable, increasing the risk of a reversal.

If the divergence persists, XLM’s selling pressure could build up, increasing the likelihood of a price reversal or correction in the near term. Moreover, XLM’s funding rate has flipped negative for the first time in six days, highlighting the growing bearish bias against the altcoin. At the time of reporting, the figure is -0.0018%. The funding rate is a periodic fee exchanged between long and short traders in perpetual futures contracts, reflecting market sentiment. When it turns negative, short positions are dominant, indicating bearish sentiment as traders increasingly bet on a price decline.

As more traders bet on XLM’s price decline, demand will continue to weaken, and downward pressure on its price will increase. On the daily chart, XLM trades within a descending parallel channel. It has remained within this bearish channel since reaching a three-year peak of $0.63 last November. Now trading at $0.28, the altcoin’s price has since plunged 55%. With strengthening bearish pressure, XLM risks falling below the channel’s lower trendline. If this happens, the altcoin could trade at $0.23.

Conversely, if XLM accumulation resumes, its price could rally past the resistance at $0.30. If successful, it could attempt to reach $0.41. However, the current indicators suggest that a reversal may be on the horizon, and XLM holders should be cautious. The bearish divergence and negative funding rate are clear signals that the recent price increase may not be sustainable, and a correction could be imminent. Investors should closely monitor these indicators and be prepared for potential volatility in the coming days.