Is Shiba Inu overheating after SHIB price gains 75% in two weeks?

Shiba Inu (SHIB) looks poised to undergo sharp price corrections after rallying nearly 75% in almost two weeks.  

SHIB price rallied to mid-January highs 

On Monday, the meme-token climbed to $0.00002961, its best level since Jan. 18, amid renewed buying interests across the cryptocurrency market. Before the retracement, SHIB's price had crashed by almost 80% from its record high of $0.00008870.

Nonetheless, the wild price recovery also came closer to triggering two classic sell signals. First, SHIB's daily relative strength index (RSI), a technical indicator that fluctuates in the range between 0 and 100 to signal whether an asset is overbought (RSI>70) or oversold (RSI<30), showed nearly-overbought conditions after rising to 60.

Last, SHIB's daily relative volatility index (RVI), which measures the standard deviation of low and high prices, dropped below 50, a sell signal. In a "perfect" scenario, traders close their long positions after the RVI drops below 40. At press time, it came out to be near 48.

Additional bearish signals

More cues for a possible SHIB price correction came from three other technical indicators. First, the Shiba Inu token's current upside momentum showed signs of weakening near its 50-day exponential moving average (50-day EMA; the red wave in the chart below), at around $0.00002761.

Second, the SHIB price's ongoing uptrend accompanied lower volumes, i.e., they came out to be nowhere closer to the volumes witnessed during the token's October 2021 price rally. That showed scant liquidity in the Shiba Inu market, making it harder for traders to execute buy and sell orders at desired levels.

As a result, a lower liquid market tends to witness wilder price swings in either direction.

Third and last, SHIB price neared a key pullback level of $0.00003358 that coincided with the 0.618 Fib line of the Fibonacci retracement graph drawn from the $0.00000507-swing low to the $0.00007971-swing high. In conjugation with alarmin RSI and RVI reading, the $0.00003358-level posed as an ideal derisk zone for traders looking to secure interim profits.

Short the SHIB rally?

Norok, an independent market analyst, wrote that the latest SHIB price rally has brought out "excellent short opportunities." He cited a fractal from November 2021 that showed SHIB undergoing a fake recovery rally of nearly 42% in two days but followed it with a 70% downside move later.

"Each rally, far from being the fresh breath of hopium owners desire, has provided excellent short opportunities for months," Norok explained, adding:

"This one is a clear pullback to test and hold Resistance and a good opportunity to add to the short where profit was taken at the start of January."

The statements appeared as bearish positions lost millions of dollars during the recent SHIB price recovery. For instance, data from Coinglass showed over $10 billion worth of liquidations for traders of Shiba Inu-backed investment products, out of which around 75% were short entries.

Nonetheless, Binance's 1000SHIB futures product, which holds 1,000 Shiba Inu tokens per contract, looked slightly skewed toward bears, with its long/short ratio coming out to be 0.93 on a 24-hour adjusted timeframe.

In detail, the Long/Short Ratio represents the amount of net long positions opened against the net short positions opened. A reading above 1 indicates that most open market positions are skewed long. Conversely, a reading below 1 indicates that the market bias is currently skewed toward shorts.

Meanwhile, the long/short ratio of SHIB futures on FTX also was near 0.97, suggesting the market's bearish outlook on a 24-hour adjusted timeframe.

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