Tezos has had a fantastic year so far with a year-to-date (YTD) return of 185 percent. Despite the ongoing class-action lawsuit against its founders, XTZ managed to get listed on several leading exchanges in the industry. As millions of retail investors got access to this cryptocurrency, its price entered a bullish trend. But, where can it go from here?
Tezos (XTZ) technical analysis
Based on its 1-week chart, Tezos is trading within a descending parallel channel. This technical pattern is forming since the peak of $1.87 on May 19. Since then, every time XTZ hits the bottom of the channel, it bounces off to the middle or top. And, when it hits the top, it retraces to the middle or bottom of the channel.
The bullish momentum seen over the last four weeks got Tezos to bounce off the bottom of the channel straight to the top. After such a drastic upswing, XTZ could soon find an exhaustion point to keep the uptrend healthy. But, if the demand for it increases around current levels, it would likely break out of the multi-month consolidation period.
A bull flag is forming
A spike in volume could confirm that this channel is part of a bull flag forming since the beginning of the year. The 360 percent rally from that took place between March and May created the flagpole. And, the descending parallel channel that developed in mid-May is forming the flag. This continuation pattern prevails that upon the breakout point, Tezos would move up 78 percent in the same direction of the previous trend.
This target is determined by measuring the height of the flagpole. A validation of this bullish technical formation would take XTZ to hit $2.26.
A bearish signal estimates a pullback
Despite the optimistic outlook, the uptrend seems to be getting exhausted, and XTZ may soon correct. The TD sequential indicator on the 3-day chart is currently on a green nine. This is a sell signal that estimates a one to four candlesticks correction or the beginning of a new downward countdown.
A red two candlestick trading below a red one candle would validate the bearish signal. If this happens, Tezos could pull back to the middle or bottom of the descending parallel channel previously mentioned. But, closing above the setup trendline at $1.42 and the recent high of $1.44 would invalidate the bearish view.
The Fibonacci retracement level presents a series of support and resistance levels that help identify where this cryptocurrency will go next.
On the upside, if Tezos moves above the 23.6 percent Fibonacci retracement level, it would likely breakout of the bull flag pattern seen on the 1-week chart.
Conversely, closing below the 38.2 percent Fibonacci retracement level would imply that XTZ would continue to trade within the descending parallel. The next levels of resistance sit around the 50 and 61.8 percent Fibonacci retracement levels sitting at $1.08 and $0.90, respectively.
At the moment, Tezos is sitting on the verge of a significant price movement. A spike in volume could take it to surge nearly 80 percent. But, an increase in sell orders could trigger a 20 to 50 percent retracement. Due to the ambiguous path that this technical analysis presents for XTZ, trading it poses high risks. It would be wiser to wait for a break above the 23.6 or below the 50 percent Fibonacci retracement level before entering a trade.