Solana (SOL) has recently made a significant price breakout, surpassing an eight-month resistance level reaching $201. Dubbed the 'Ethereum killer' due to its scalable blockchain technology, Solana has now also become the fourth cryptocurrency to reach a market capitalization of $100 billion.
However, despite achieving this impressive feat, a strong sell signal could pose challenges in maintaining these gains in the coming days.
Investors in Solana are retreating
Although Solana's price is rising, active addresses on the network are declining. This decline leads to the 'DAA Divergence' (Daily Active Addresses) phenomenon, signaling potential selling pressure. When prices rise alongside decreasing active addresses, it often indicates that fewer investors are participating in this asset, which could lead to diminished momentum.
This divergence between Solana's price and active addresses may signal caution. The sell signal arising from this indicator reflects uncertainty within the investor community, which could limit subsequent profit-taking. If this trend continues, it may lead to a wave of profit-taking as investors seek to preserve recent gains, affecting SOL's price stability.
The number of active addresses for Solana. Source: Glassnode
Solana's macro growth momentum is showing signs of overheating. The Relative Strength Index (RSI), an important technical indicator, currently indicates that Solana is in the overbought region.
Historically, this often leads to short-term corrections when prices are overvalued. If the RSI remains high, it could signal a potential reversal, leading to a temporary price drop.
This overbought RSI status indicates that Solana's bullish momentum may struggle if investor enthusiasm cools. The risk of a reversal is high, as previous high RSI readings often coincide with profit-taking. Traders are advised to monitor the RSI closely, as subsequent price increases may depend on the RSI moving out of the overbought region.
Solana's RSI indicator. Source: TradingView
SOL price prediction: Preventing a reversal
Solana's price surge has pushed it to a three-year high of $215, with SOL currently trading at $205. However, with declining address activity and an overbought RSI, Solana's price is increasingly approaching a potential support level of $201. If this level cannot be maintained, the price could continue to drop sharply.
If investors start to take profits, Solana could drop to the level of $186, a key support level for this altcoin. Staying above $186 is crucial to maintaining the recent upward trend, as breaking below this level could signal a deeper correction.
Solana price analysis. Source: TradingView
Conversely, if Solana bounces from the support level of $201, it could aim to break through the next key resistance level at $221. Surpassing this level could push Solana's market capitalization back above $100 billion, restoring bullish momentum and countering the current bearish outlook.
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