Dogecoin (DOGE)’s brief price rally last week following Tesla CEO Elon Musk’s bid to buy Twitter appears to be imploding, with DOGE closing the week over 8% higher.
The price of DOGE fell to $0.142 on April 17, three days after hitting a local high of $0.149. Dogecoin’s correction, albeit modest, increased the potential to trigger a classic bearish reversal pattern with an 85% success rate of hitting its downside target.
DOGE price eyes drop below $0.10
Called a “head and shoulders” (H&S), the pattern occurs when the price forms three peaks in a row, with the middle one (“the head”) between the other two, which are roughly equal and called the “shoulder.” .
These three tops rest on a common support level called the “neckline.” As the theory goes, the price usually falls below the neckline after the formation of the third top, or right shoulder, and falls as far as the maximum height of the H&S – ie, the distance between the top of the head and the neck.
It appears that DOGE has been forming a similar structure since at least March 24th. The cryptocurrency may now fall to its neck after forming its right shoulder, followed by a full decline, as shown in the chart below.
As a result, the probability seems higher that Dogecoin will correct towards its H&S neckline near $0.132, about 7.5% below the April 17 price. The level coincides with DOGE’s 50-day simple moving average (50-day SMA; blue wave), thus providing additional support.
A decisive breakout move below the support point could risk triggering the H&S setup, with the downside target falling below $1, almost 30% below the April 17 price.
Interestingly, the target appears close to the lower trendline of the descending channel pattern that has enveloped Dogecoin’s price movements since December 2021.
“The Musk Effect”
Musk continues to be an influential catalyst behind Dogecoin’s temporary price trends.
News that he bought a 9.2% stake in Twitter on April 4 helped boosted DOGE’s price by more than 20% to $0.174 the day after, its best level in almost three months.
A correction followed as traders locked in temporary gains, only for the DOGE price to rebound again after Musk indicated intentions to buy Twitter in its entirety for $43 billion.
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“Enthusiasts believe that the “Musk effect” and his growing influence on Twitter could increase the adoption and price of Dogecoin. Their sentiment was fueled by Robinhood CEO Vladimir Tenev, who earlier this week said DOGE could become “the currency of the internet.”
#dogecoin + Elon Musk + Twitter + Popularity = $10 future value let’s go $ Doge #DogecoinToTheMoon
— Dogecoin and Bitcoin HODL (@HodlDogecoin) April 15, 2022
Musk has backed the idea, suggesting Twitter’s board introduce a DOGE payment option for its monthly subscription service Twitter Blue.
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