Polkadot requires confirmation on these points before setting a new ATH

Polkadot's rising wedge was coming to an end after two weeks of sluggish price action.

 With bearish divergences on the RSI and unfavorable readings on the MACD, DOT faced a 30 percent sell-off towards the $28.5 mark.

Bulls would need to carry DOT's 24-hour surge above a supply zone of $46.3-$49.5 to turn the tide. Until then, the possibility of a retracement cannot be ruled out. DOT was trading at $45.3 at the time of writing, up 9% in the previous 24 hours.

Polkadot Daily Chart

polkadot dailay chart

Polkadot's rising wedge began to manifest in late August, after the price maintained its streak of higher highs and higher lows into November. However, once investors cash out their gains, the pattern is prone to breakdowns.

In the case of DOT, an overhead resistance of $46.3-$49.5 posed a similar threat if a majority of investors took profits. If this is the case, DOT could face a 30% drop from the breakout point, based on the pattern's highest and lowest points.

Bulls can look to provide countermeasures in the $28.5-$29 range to rekindle momentum for a new rally. DOT can set its sights on $40 once earlier swing highs of $34 and $36 are overturned.

On the other hand, an early close above $49.7 could serve as a catalyst for further gains. A breakout in the opposite direction would send DOT soaring towards its target of around $65 per share.

Reasoning

Unfortunately, the combination of DOT's daily RSI and MACD contributed to an unfavorable result. A series of lower peaks along the RSI indicated a bearish divergence in DOT's price action. The bearish crossover of the MACD may also generate additional selling pressure in the coming days.

Conclusion

If the price breaks south from its rising wedge, DOT could see a 30% drop. Traders can profit from this development by shorting DOT below $40. With a stop-loss of $50, the take-profit can be set within a strong defensive zone of $28.5-$29.5.

Meanwhile, bulls may hope that the DOT's 24-hour surge will propel it above the $50 mark. This would negate DOT's wedge and allow for additional gains.

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