Solana (SOL) recently experienced a brief breakout above its resistance level, sparking hopes of a bullish rally. However, the excitement was short-lived, with the altcoin quickly falling back into its established horizontal channel. This fakeout has left traders questioning whether SOL can reclaim its upward momentum or if a deeper decline is on the horizon.
Since the beginning of September, SOL has been trading within a defined range, with resistance at the top of the channel and support at the bottom. On September 13, Solana broke above its resistance at $138.12, peaking at $139.78. This move hinted at the continuation of its uptrend, but the breakout proved to be deceptive. SOL soon retraced, slipping back into the channel, marking a classic fakeout.
A fakeout occurs when an asset appears to break a trend, only to reverse course and return to its previous range. For traders, these false signals can lead to losses, especially for those who entered positions expecting a sustained breakout. As SOL fell back into the channel, the excitement turned to caution, with traders shifting their focus to the coin’s derivatives market.
Rising Derivatives Activity Despite Price Decline
While Solana’s spot price has been volatile, its derivatives market has shown increasing activity. Since September 13, SOL’s futures open interest has risen by 3%, reaching $2.12 billion. This indicates growing interest in the altcoin, even as its price struggles to break free from the horizontal channel.
Interestingly, despite SOL’s price decline, traders remain optimistic about its future. Coinglass data shows that Solana’s funding rate, which helps keep perpetual contract prices aligned with the underlying asset, has remained positive since the recent fakeout. As of now, SOL’s funding rate sits at 0.0062%, signaling that more traders are betting on a price rebound.
Technical Indicators Flash Bearish Signals
Despite the positive sentiment in the derivatives market, technical analysis paints a more concerning picture. On the four-hour chart, Solana’s Elder-Ray Index—a measure of bull and bear power—has been consistently negative since September 15. This suggests that sellers are in control, applying downward pressure on the coin’s price.
Adding to the bearish outlook, the Directional Movement Index (DMI) shows SOL’s negative directional indicator (red) above its positive directional indicator (blue), a clear signal of negative momentum. If this trend continues, Solana could break below its current support level of $126.46 and fall by an additional 13%, potentially trading around $109.64.
Will Solana Bounce Back?
While the technical outlook is bearish, a potential reversal isn’t off the table. If renewed buying pressure emerges, SOL could retest its resistance at $138.12. A successful breakout could see Solana rally toward $161.50, offering traders another chance to capitalize on a bullish move.
For now, however, the market remains cautious as Solana navigates the aftermath of its fakeout. Traders will be watching closely to see if the altcoin can regain momentum or if a deeper decline is inevitable.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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