Spooky Solana breakdown begins with SOL price facing a potential 45% drop — Here's why

Published at: May 26, 2022

Solana (SOL) dropped on May 26, continuing its decline from the previous day amid a broader retreat across the crypto market.

SOL price pennant breakdown underway

SOL price fell by over 13% to around $41.60, its lowest level in almost two weeks. Notably, the SOL/USD pair also broke out of what appears to be like a "bear pennant," a classic technical pattern whose occurrences typically precede additional downside moves in a market.

In detail, bear pennants appear when the price trades inside a range defined by a falling trendline resistance and rising trendline support.

These patterns resolve after the price breaks below the lower trendline, accompanied by higher volumes. As a rule of technical analysis, traders decide the pennant's profit target after adding the length of the prior's leg lower (called "flagpole") to the breakdown point.

SOL has been undergoing a similar breakdown after closing below its pennant's lower trendline on May 25, as shown below. In theory, Solana's profit target comes to be near $23, down about 45% from May 26's price.

Nonetheless, SOL's bear pennant breakdown appears without a spike in trading volumes, suggesting that traders are not fully convinced with the move. That could prompt the token to retest the pennant's lower trendline as resistance.

Moreover, a successful retaking of the trendline as support risks invalidating the bear pennant setup while bringing the 20-day exponential moving average (20-day EMA; the green wave) near $57.59 in proximity as the next upside target.

Conversely, a pullback could keep SOL's near-$23 profit target in view, with $35.50—the May 12 price floor that preceded a sharp rebound—serving as interim support.

Solana price support confluence

SOL also trades near a support confluence, comprising multi-month horizontal and rising trendlines.

The horizontal trendline near $45.75 served as resistance during the April–August 2021 session and later flipped to become support between January 2022 and March 2022. Simultaneously, the rising trendline has been capping SOL's extended bearish attempts since March 2021.

As the two trendlines converge, they could become a psychological entry point for investors with a long-term upside outlook. That would mean SOL rebounding towards its next upside target near $79, which also coincides with a multi-month falling trendline resistance.

On the other hand, a continued selloff in the Solana market would have SOL risk another massive decline, as discussed in the bear pennant setup above.

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