All across the board, altcoins are behaving highly bearish, especially Yearn Finance (YFI) which is on the brink of completing a Head & Shoulders pattern.
The chart pattern implies a very bad situation for investors, who may want to hedge in the short term. If YFI does collapse by the end of the year, its last line of defense stands between $15,000 and $18,300 in a gigantic demand zone.
In another YFI TA post on December 14, we have carefully watched bears ‘kill’ YFI as the price was rejected off from an important diagonal line.
While bullish investors have temporarily managed to reclaim higher price levels in the short term, they still failed to take back control of this highly important line. Since the end of last week, YFI fell by more than 30% in the span of only a few days.
DeFi’s most important token bounced from an important support level at $19,400. As a matter of fact, prices ran as high as $25,000 but traders were not able to push past the previous pre-crash area. We are now hanging onto an incredibly tight situation as YFI appears to be stuck in the middle of an important price zone.
The only thing that YFI is holding onto is a horizontal support line at $22,500. The last four 2H candles have been rejected each time at a 0.382 Fibonacci level at $23,000.
This might be a good zone to enter a position given that prices may go in either direction at this point. However, the market environment favors bears far more than bulls. If YFI keeps closing under $23k the cryptocurrency will then finally confirm an H&S pattern.
What is a Head & Shoulders pattern and why is YFI forming it?
In technical analysis, Head and Shoulders represents a chart pattern in which prices indicate a bearish reversal. Therefore, a once bullish PA may – upon the complete formation of this pattern – turn into bearish PA.
Specifically, the H&S pattern occurs when a chart forms lower highs on the sides of a range, which we refer to as shoulders. The middle part, which is the head, usually achieves a higher high in this range.
And in the end, a neckline is defined as a price level that acts as support in the H&S pattern. Most of the time an H&S will make your chart look like three pyramids sitting next to each other.
As we see in the picture above, YFI completed all three phases and formed both head and shoulders. The pattern may not be as clean given that the neckline was already broken two times, but the H&S can still be considered as valid. In order to finish the H&S, the only thing that bears have to do is completely break the neckline at $22,757.
Will a demand zone save the day?
Considering that market participants are continuously making lower highs in the past two days, it is highly possible for bearish investors to break that area.
When it does happen YFI should see a violent collapse which should lead us to prices lower than $19,300. Based on historical price action, the area between $13,000 and $16,000 may serve as an important demand zone. If the level holds, Yearn Finance should definitely not collapse any further.
But if we take a look at high timeframes, we see that YFI fell far harder when it formed an H&S the last time. In that case, the asset dropped 50% more after ranging in a zone of demand. If the same situation repeats, investors should take care and try to not catch falling knives.