Sonic [S] Stock Plummets 17% in a Single Day: Can it Recover?

Over the past few weeks, Sonic [S] (previously known as FTM) has been showing a positive trend, with consistent gains. Within just one month, it surged by 31.11% and added another 21.75% in the last week alone.

However, as of the latest update, Sonic experienced a significant drop of 17.22% in the last 24 hours. This sudden decline can be attributed to an increase in liquidity outflow and mounting selling pressure from traders in the derivatives market.

Critical Indicators Signal a Downturn

There has been a noticeable shift in the derivative market, with key metrics pointing towards a bearish outlook for Sonic in the near future.

The Open Interest (OI), which indicates the volume of outstanding derivative contracts, witnessed a substantial decrease, plunging by 19.44% to $114.13 million. This decline suggests a significant closure of contracts in the market.

The bearish sentiment stemming from this dwindling OI is corroborated by the surge in trading volume, which spiked by 49.77% to reach $795.48 million across the market.

Furthermore, the data on liquidations, detailing losses incurred by both buyers and sellers within a specific timeframe, further confirm this bearish trend.

Notably, the segment with the highest losses indicates a shift in market direction.

At present, the market has seen liquidations exceeding $1.4 million, with long positions accounting for $1.32 million in losses, whereas short contracts faced losses of only $81.05 thousand.

The higher losses observed in long positions signify a downward trend in the market, indicating a continuation of this trajectory until key market metrics show a change.

Decline in Liquidity Outflow

Liquidity has been steadily draining out of the Sonic market. The Total Value Locked (TVL), tracking the amount of assets deposited into various protocols within the ecosystem, has shown a consistent decrease.

As of the latest data, the TVL has plummeted from a peak of $736.04 million on the 24th of February to the current level of $694.4 million.

This signifies a total outflow of $41.44 million from the market, with expectations of further decline if the selling pressure persists.

A broader analysis of the TVL chart hints at a potential correction phase before a probable rebound, a pattern witnessed on multiple occasions.

However, the magnitude of this correction remains uncertain, raising the possibility of the most substantial drop so far.

Diminishing Traders’ Confidence

The confidence among long traders in the market has weakened as the funding rate turns negative, indicating a shift towards dominance by short-term traders.

With a reading of -0.0071, the market is likely to witness further decline, as more short traders opt to pay a premium to uphold the price spread between the spot and derivative markets.

Overall market sentiment strongly suggests that Sonic is currently grappling with its most bearish phase and is poised for additional price drops.