YFI at risk of pullback after 100% rally

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2022-01-05 22:37:28

Yearn.finance (YFI) looks poised for a correction after five consecutive days of gains to $42,000. However, the lack of buying volume coupled with the risk of overbought is hiding behind the bearish outlook.

YFI rally so far

YFI price rallied more than 47% in five days to $41,970 as traders pivoted away from “high-cap” cryptocurrencies like Bitcoin (BTC) and Ether (ETH) and looked for short-term opportunities. on the altcoin market.

“DeFi assets are showing some good signs of growth to start 2022. YFI, UNI and AAVE are all doing well so far.”

Yearn.finance is one of the projects that has benefited from the capital migration, as its value relative to BTC and ETH has increased by nearly 47% and 41.50%, respectively, in just five days. Meanwhile, the core element of interest among traders in the YFI market is the buyback program.

YFI/ETH and YFI/BTC price chart daily frame after buyback announcement | Source: TradingView

On December 16, the Yearn.finance team announced it had purchased over $7.5 million worth of YFI from the open market at an average price of $26,651. They also revealed an additional $45 million in cash in their coffers that will be used to further the buyback.

Additionally, the Yearn.finance community also proposed that the YFI treasury use part of the buyback to reward holders actively participating in Yearn Governance, which is currently in the voting phase.

YFI price jumped more than 100% against the US dollar following the buyback announcement.

Price adjustment risk of YFI

However, YFI’s trading volume has declined despite the recovery, showing that traders are not really putting faith in its upward movement.

Daily frame YFI/USD price chart with price-volume divergence | Source: TradingView

Usually, a bearish divergence between value and volume leads to a correction or consolidation until confidence increases. As a result, the chances of YFI having to pause its ongoing rally are high, with its daily relative strength index (RSI) also entering overbought territory above 70, a sell signal.

Additionally, YFI’s latest rally has brought it near the $40,000 inflection zone, as shown by the Fibonacci retracement in the chart below.

Three-day YFI/USD price chart with Fib entry and exit levels | Source: TradingView

In particular, the 0.618 Fib line near $40,113 capped YFI’s intraday bullish attempt. This level also halted the October-November rally, which subsequently sent the YFI price to a 12-month low near $17,000.

However, if the bulls attempt to push the YFI price above the 0.618 Fib line decisively, they can also take it out of a multi-month range limited by support around $25,500 and resistance at $40,000. In that scenario, the next upside target for YFI could be moving towards the 0.5 Fib line around the $51,000 level.

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#YFI #risk #pullback #rally

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