Is COMPound bottoming out?
In the past 7 days, a particularly strange phenomenon has been observed in the crypto market. Of the top 50 coins by market cap, COMPound (COMP) stood out from the crowd. Why? While the majority of coins suffered from a debilitating downtrend (look at BTC, DOGE charts), COMP managed to achieve a clean breakout from a similar downwards movement, accompanied by massive increases in volume. What does this imply? Let’s recap COMP price action, and look into possible future outcomes.
COMP’s previous uptrend started in November of 2020 and ended in mid-May of the current year. It lasted for approximately 6 months, and the price skyrocketed from $80 to $900 USD – a staggering 1125% increase in the course of 6 months. While this type of quadruple-digit return is almost unheard of in traditional stock markets, it pales in comparison to this year’s crypto champion, DOGE. The latter was up 20,000% in the same period of time.
COMP broke the half-year uptrend on the 19th of May, subsequently showing two lower lows on the chart corresponding with the left shoulder and the head of a reversed-head-and-shoulder pattern. The first lower low (left shoulder) was accompanied by a fairly large sell volume, while the second lower low (the head) had slightly less sell pressure. Unexpectedly, COMP suddenly rallied with gigantic volume and broke the 1.5-month downtrend (red line on the chart). It rose 85% in a matter of days. In the near term, COMP is likely to face resistance at the price level of $470.
The first suggestion that a true reversed-head-and-shoulder pattern is developing may come when volumes accompanying the most recent low were somewhat less in comparison to the low directly preceding it.
On that note, the price action and volume of COMP have met the criteria of a reversed-head-and-shoulder pattern, although the pattern has only partially formed (approximately 50%). As to whether or not COMP will complete the pattern – only time will tell. All we can do is to be patient, as patience is a virtue in the crypto market. Unfortunately, the reality is that quite a few people investing in crypto are looking for quick gains, and while possible – a more thorough, longer-term approach is often more rewarding.
What if this is NOT a reversed-head-and-shoulder pattern?
If that’s truly the case, the uptrend from the current price level is unlikely to continue, although it is not entirely impossible. Unless, however, COMP experiences massive volume from market participants and manages to break yet another resistance level at $470. If this occurs COMP will experience very strong momentum, resulting in rapid upward movement. Resistance can be observed at the $550-$560, $680-$700, and $850-$900 ranges. If the broader crypto market is still on the downtrend, COMP is unlikely to break away from the crowd, even if fundamentals remain strong. The COMP price could potentially go lower if it breaks below the recent low/support of $215. The next support is likely to be at $180 and $130 (see chart).
As always, thanks for reading. Happy trading CoinFLEXers!
Trade COMP on Coinflex: https://coinflex.com/markets/COMP-USD
Author: Peter Yuen