Litecoin may have hit fresh 2018 lows Wednesday, but could be in for corrective rally courtesy of oversold conditions.
The world's sixth-largest cryptocurrency fell to $93 at 15:10 UTC, the lowest level since Dec. 8, and is currently trading at at $95.80 on Bitfinex, down 9 percent in the last 24 hours.
The 48 percent drop from the May high of $182 has turned the tide in favor of the bears. However, the sell-off looks overdone as the daily relative strength index (RSI) has nosedived into oversold territory (below 30.00) for the first time in over two months.
Hence, LTC could revisit $100 (major psychological hurdle) in the short-run before resuming the drop towards $80.
Daily chart: RSI
Currently, the RSI is hovering at 26.00, indicating oversold conditions. So, the sell-off may run out of steam in the next 48 hours or so.
Interestingly, LTC is looking oversold at a time when short positions on Bitfinex exchange are at the highest level since Oct. 12.
Usually, such extreme market positioning is considered a sign that a trend is nearing exhaustion. So, a short squeeze could be in the offing and could lift prices above $100.00.
That said, the broader outlook would still remain bearish as indicated by a pennant breakdown in the long-duration charts below.
LTC closed at $102 last week, signaling a downside break of the pennant – a bearish continuation pattern indicating that the sell-off from the record high of$370 has resumed. So, in the long-run LTC will likely test $80.12 (78.6 percent Fibonacci retracement of the rally from 2015's low to 2017's high).
Daily chart: Moving averages
As of writing, LTC is trading well below the 50-day moving average (MA), 100-day MA and 200-day MA, indicating a long-run bearish setup. Also, corrective rallies will likely be short-lived as long as the 5-day and 10-day MAs are trending south in favor of the bears.
- The short-term oversold conditions could pave way for a minor corrective rally to $100 (psychological hurdle) and possibly to $106.
- The long-run outlook remains bearish, so LTC will likely test $80 (78.6 percent Fibonacci retracement of the rally from 2015 low to 2017 high) over the next few weeks.
- Only a weekly close on Sunday (as per UTC) above $120 (pennant floor now acting as resistance) would abort the long-term bearish view.
Litecoin image via Shutterstock