The digital currency Polygon [POL] is currently experiencing a significant drop, with a 12% decrease over 24 hours, bringing its trading price to $0.457 as of the latest data. During this decline, trading volumes surged by 33% to reach $248 million, according to data from CoinMarketCap.
Over the past month, Polygon has been under bearish pressure, witnessing a decline of approximately 33% in its price. This downward trend has negatively impacted the profitability of wallets holding POL, with 91% of wallets now being in a loss-making position.
When a large number of wallets are facing losses, it generates negative market sentiment, leading to further price drops. Additionally, holders might opt to sell their holdings to mitigate their losses, adding to the selling pressure in the market.
With these prevailing bearish conditions, the question arises: are there any indications of a potential recovery and a reversal of the current trend?
Overbought Signals Detected by RSI
An analysis of Polygon’s Relative Strength Index (RSI) on the four-hour chart reveals that the token is currently in oversold territory, with the RSI plummeting to 23, marking its lowest point since mid-December.
Typically, an oversold RSI often anticipates a corrective upward movement in the price. Past patterns have shown that Polygon usually initiates a rally when the RSI hits oversold levels, indicating a potential recovery phase for the altcoin.
However, the Average Directional Index (ADX) has yet to confirm the conclusion of the downtrend. In fact, the ADX line is showing an upward trajectory, signaling the strengthening of the current bearish trend, with the possibility of Polygon dropping to the 1.618 Fibonacci level at $0.416.
Nevertheless, a reduction in selling pressure as buyers perceive the oversold RSI as an attractive entry point could trigger a bullish reversal, propelling the price towards $0.538.
Spike in dApp Activity
Recent data from DappRadar indicates a significant surge in decentralized application (dApp) volumes on the Polygon network. In the recent hours, these volumes have increased by 18% to $244 million, reaching the highest level in six days.
However, despite this surge, the number of transactions dropped below $1 million, alongside a decrease in the count of Unique Active Wallets (UAWs). Moreover, the monthly dApp volumes on Polygon have witnessed a 37% decline, signaling a bearish long-term perspective for the network.
Bearish Momentum Reflected in Long/Short Ratio
The Long/Short Ratio for Polygon currently indicates a bearish momentum, standing at 0.885. This drop implies that the number of short positions marginally outweighs the number of long positions at present.
In times of bearish momentum, short traders tend to increase their positions; however, an excessive influx of short positions could escalate the risk of a short squeeze, triggering forced buying activity in the market.