The PEPE cycle not only exemplifies the emotional phases of the market but also left clear technical signals for attentive observers. Here we present a breakdown of the main tools and patterns that can help identify boom and bust movements in highly speculative cryptocurrencies.
1. Volume indicators: The key to accumulation and distribution
Volume is one of the most important indicators for detecting accumulation and distribution. During the PEPE cycle:
• Accumulation phase:
In the first weeks, the price of PEPE remained stable with little movement, but a slight increase in daily volume was observed. This increase, although not explosive, suggested that major players (whales) were accumulating while prices were low.
• Alert signal: Increasing volume without significant price changes is indicative of accumulation or preparation for a bullish impulse.
• Distribution phase:
At its all-time high, volume showed different behavior. Although the price continued to rise, volume reached extreme peaks and then began to decline, indicating that buyers were running out and whales were selling their positions.
• Alert signal: Divergence between decreasing volume and rising price (bearish divergence).
2. Momentum indicators: RSI and MACD
Momentum indicators, such as the RSI (Relative Strength Index) and the MACD (Moving Average Convergence/Divergence), are useful for identifying overbought conditions and potential reversals.
• RSI:
During the PEPE boom, the RSI surpassed levels of 90, indicating an extreme overbought condition. This is typical in speculative boom phases, but when the RSI began to decline below 70 while the price remained high, it was a signal that buying pressure was decreasing.
• Alert signal: A declining RSI combined with high prices is a bearish divergence, suggesting an imminent reversal.
• MACD:
In the distribution phase, the MACD showed a clear negative divergence: while the price continued to reach new highs, the MACD lines began to cross downward. This indicated that bullish momentum was losing strength.
• Alert signal: A bearish cross of the MACD, especially after an exponential rise, is a strong reversal signal.
3. Candle patterns and market structures
Candle formations and price patterns also provided clues during the PEPE cycle.
• Doji at highs:
During the peak of PEPE, Doji and upper rejection candles formed on higher timeframes (such as daily), reflecting indecision in the market and lack of strength to continue upward.
• Alert signal: Doji candles at highs often indicate a possible bearish reversal.
• Market structure: Double top
In the chart, the price attempted to reach its all-time high twice unsuccessfully, forming a double top, a classic bearish reversal pattern.
• Alert signal: The inability of the price to break through a key resistance level after several attempts suggests an imminent drop.
4. Exponential moving average (EMA): Lost dynamic supports
EMAs (for example, 20 and 50 periods) serve as dynamic supports in bullish trends.
• During the PEPE rise, the price consistently respected the 20-period EMA. However, upon reaching the distribution phase, the price broke this EMA with a significant increase in volume, indicating a trend change.
• Alert signal: The breakout of a key EMA with strong volume is a technical indicator that the bullish trend has ended.
5. Market psychology: Euphoria and panic
Although technical indicators are valuable, it is also important to interpret market behavior:
• Euphoria:
During the boom, social media and forums were filled with optimistic messages, absurdly high price predictions, and fear of missing out. This 'collective euphoria' often coincides with the peaks of the cycle.
• Alert signal: When the market narrative becomes unrealistic and retail investors dominate the flow of capital, it is a sign that the distribution phase is near.
• Panic:
In the decline, the same channels filled with fear and despair, exacerbating the collapse.
Conclusion: A comprehensive approach
The case of PEPE underscores the importance of combining technical analysis with an understanding of market psychology. Overbought signals (high RSI, decreasing volume, divergences) and reversal patterns (double top, EMA breakouts) were clear for those who sought them.
Investors can avoid significant losses if:
1. They identify the phases of the market cycle.
2. They recognize technical alert signals and divergences.
3. They maintain an objective mindset and do not let themselves be carried away by euphoria or panic.
Ultimately, PEPE is a reminder that successful trading requires discipline, in-depth analysis, and proper risk management.
