Cardano price eyes $3, but ADA chart fractal hints at a potential 40% correction

The ADA/USD exchange rate has moved further into its “overbought” area, suggesting that a trend correction might follow suit.

Cardano blockchain’s native asset ADA reached a new record high on Aug. 23 as investors pinned hopes on an upcoming smart contracts feature that expects to boost the cryptocurrency’s adoption.

The ADA/USD exchange rate topped out at $2.899 around 09:00 UTC, raising anticipations that it would easily close above $3 in the coming sessions.

Many analysts, including pseudonymous chartist PostXBT, noted that the Cardano token had entered a “price discovery mode.” Meanwhile, David Gokhshtein hinted that ADA/USD might continue its bull run until Sep. 12, the day Cardano would integrate smart contracts feature to its blockchain via a so-called “Alonzo” upgrade.

In detail, Alonzo upgrade introduces a native smart contract development language called Plutus to the Cardano ecosystem. Plutus is already available for testing and brings functional programming to smart contract creation to everyday users.

As a result, ADA bulls anticipate the token’s adoption to boom in the sessions ahead as Cardano attracts dapp developers—operating in the emerging decentralized finance (DeFi) and non-fungible tokens (NFT) sector—to its smart contracts ecosystem.

Overbought risks

But Cardano’s technical indicators predict a short-term shock, something that might have the ADA/USD corrected lower by as much as 40% despite maintaining its long-term bullish outlook.

The Cardano token’s daily relative strength index (RSI) has ventured deeper into its overbought territory, at around 83. Traders consider an RSI reading above 70 as overvalued. As a result, it prompts them to sell the asset to secure maximum profits.

ADA/USD daily chart featuring RSI correction fractal. Source: TradingView.com

For instance, a run-up in ADA/USD rates in the first quarter of 2021 pushed its RSI reading above 90. Later, the pair started consolidating sideways while maintaining support near its 50-day exponential moving average (50-day EMA; the scarlet wave).

Related: Cardano defies Peter Brandt’s 90% crash warning, ADA price doubles to new high

ADA price now sits atop 114% month-to-date and 1,511% year-to-date profits. At the same time, an oversold RSI pictures an interim profit-taking scenario. So if the Q1/2021 fractal repeats, ADA’s next line of support comes to be near its 50-day EMA at $1.73, almost 40% below the current prices of $2.83. 

But a correction does not necessarily exhaust Cardano’s long-term bullish outlook. Given the potential success of its Alonzo upgrade, the project could end up attracting more speculative upside bids for its ADA token. As a result, the ADA/USD exchange rate expects to remain in a price discovery mode.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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