LDO’s chances of holding its gains are improved by Ethereum 2.0’s potential September launch.
A day after Lido DAO’s (LDO) primary momentum oscillator entered “overbought” area, the stock’s price experienced a sharp decline.
LDO is Corrected for Overbuying
LDO’s price fell from $1.32 on July 15 to as low as $1.04 on July 16, a fall of at least 20%. A number of bearish technical indicators, including as the token’s daily relative strength index (RSI) and its 100-day exponential moving average, served as signals for the swift downward movement (EMA).
LDO’s most recent decline occurred after a rally of more than 220 percent in only two weeks, a move that also caused its daily RSI to rise above 70 on July 15 and become overbought.
An overbought RSI indicates that the rally may be reaching its conclusion and that a brief pullback is imminent.
The 100-day EMA of the Lido DAO token (the black wave in the chart above) provided additional bearish cues while it was near $1.30, preventing LDO from continuing its 150 percent price increase.
The price movement first resembled LDO’s drop in April 2022, which occurred when its RSI rose over 70 for the first time in history. Notably, by mid-June 2022, the price of the Lido DAO token had dropped by more than 90%, reaching $0.39, a record low.
Because of this, LDO has a greater chance of repeating the April–June 2022 correction, while there is no clear bottom in sight. However, the interim downside objective for the token is close to its 50-day EMA (the red wave) at $0.90, which is a 20 percent decrease from the current price.
On the other side, a break below the 50-day EMA would increase the likelihood that LDO would drop to roughly $0.75, which also happens to be the location of the 0.618 Fibonacci retracement line on the chart drawn from the $0.39-swing low to the $1.31-swing high.
The Merg Of Ethereum Coming in September
On July 15, Ethereum developers announced that “the Merge” or “Ethereum 2.0,” their network’s much anticipated switch from proof-of-work to proof-of-stake, will probably take place on September 19.
Due to its tight ties to Ethereum, LDO saw a gain of around 25% the day of the announcement.
LDO is specifically used as a governance coin at Lido, a liquid staking platform which has locked more than 4.13 million ETH (or almost $5 billion) on behalf of its users under Merge’s official smart contract.
Following Ethereum’s announcement, more ether were deposited via Lido into the Merge smart contracts.
A successful Merge launch would attract more customers to Lido, which is now the largest provider by total amount staked. This would increase demand for LDO tokens.
Therefore, if Ethereum’s aspirations to become a proof-of-stake chain materialize as planned, a technical drop in the price of LDO might be followed by a rebound toward the 100-day EMA.