After a 125% price comeback from $1.23 on Dec. 14, 2021, to $2.84 on Jan. 3, 2022, Fantom (FTM) appears to be on track to achieve a new high in the coming sessions.
The setup is known as inverted head and shoulders (IH&S), and it occurs when an asset creates three troughs below a so-called neckline resistance, with the centre trough (the head) being deeper than the left and right shoulder.
As illustrated in the figure below, the price of FTM has recently followed a similar pattern. As a result, FTM has a common resistance level in the $2.55 to $2.74 region, which corresponds to the length of the inverse head and shoulders pattern.
Is it possible for Fantom to gain another 50%?
An IH&S pattern would generally result in a bullish breakout after the price closes decisively above the neckline level in a perfect scenario. When measured from the breakout point, the maximum distance between the head and the neckline should be equal to the upside target.
FTM reached the neckline of its IH&S formation on Monday, nearly completing it. As a result, a bullish breakout above the $2.55 to $2.74 resistance range may be the Fantom token’s next move. Based on the setup seen in the chart below, it would attempt a run-up to $4.33.
A rapid price pullback from the neckline area, backed by a surge in volume, would put the IH&S setup at risk of being invalidated. If that’s the case, the next good support line might be around $2.08. This would be based on FTM’s volume profile visible range (VPVR), a metric that shows trading activity over a set period of time at set price levels.
Is there a danger of overvaluation?
The Fantom market’s downside risks came in the form of its relative strength index (RSI), a tool that assesses the size of an asset’s recent price swings to determine whether it is overbought or oversold.
FTM’s daily RSI entered overbought territory on Jan. 3 when its value surged marginally above 70. FTM is overbought, according to the technical indicator, and should be correct to neutralise market sentiment.
In layman’s words, an RSI value of 70 or higher is usually interpreted as a sell signal. However, sell-offs do not always occur immediately when the RSI enters the overbought zone.
The FTM price appears to extend its upside momentum even after the indicator passes above 70, according to repeated RSI corrections seen between August and September 2021. On September 9, the daily RSI reached over 89, coinciding with the FTM price hitting a new high of $1.99.
Despite the dangers of overvaluation, FTM may be able to achieve its IH&S profit forecast of $4.33. A correction to the 20-day exponential moving average (20-day EMA; the green wave in the chart above) at $2.09 is possible.