Cardano Prints Buy Signal but Watch Out for a Bull Trap

Cardano has printed a buy signal on the daily chart as its price reaches a deeply depressed state, but it could end up being a bull trap.

On the 1-day chart, the Tom Demark (TD) Sequential has printed a buy signal, suggesting that Cardano (ADA) could be gearing up for a reversal. If this plays out, the coin could push to higher prices in what could be a short-term rally.

Positive Sign Amid Recent Cardano Project Hack

The TD Sequential identifies trend reversal through exhaustion points numbered from 1 to 9. Usually, the bar lettered 9 is the point where prices could likely reverse course, signaling the end of the earlier trend.

On Thursday, this indicator flashed a buy signal on the daily ADA chart following its dip to an intraday low of $0.138. It suggests that after three consecutive days of downtrend where Cardano dropped nearly 10%, a rebound could be on the horizon.

Notably, this signal comes as the pessimism around a recent ecosystem project hack cools off. SecondFi, a Cardano-based wallet protocol, suffered a security breach resulting in a loss of over 16 million ADA ($2.4 million) from 374 wallets. However, an independent insight from SlowMist estimated the losses to be around 129 million ADA, worth roughly $20 million.

The event further added pressure to the Cardano ecosystem, which has been in the spotlight for several negative reasons lately. Governance issues, treasury budgeting, and major stakeholders threatening to step back have set the network back before the hack.

However, the negativity seems to be fully priced in. The TD Sequential suggests this with the buy signal. Interestingly, ADA is already experiencing a rebound. The coin has bounced nearly 6% from its intraday low of $0.138 today to its current price of $0.1454.

On-Chain Activity Supports Rebound

Further supporting this technical buy signal is the recent network activity highlighted by Santiment. Active addresses have climbed to 29,025, suggesting that more users are now leveraging the network on a daily basis.

Additionally, ADA’s social dominance surged to 0.33% as discussions mentioning Cardano on social platforms increased. The hack and its governance issues aided this spike, with FUD dominating the conversation.

However, Santiment highlighted that these events historically precede a mild price rebound. The two previous occurrences this year saw ADA recover considerably as buyers stepped in to tame selling pressure.

Is the Cardano Bounce a Bull Trap?

While both technical and on-chain developments point to a possible rebound, the broader market trend remains bearish. As such, the rebound could end up as a relief rally before the subsequent leg down.

The levels to watch closely are the $0.160 to $0.176 range, which represents a 10% to 21% increase from the current market price. If bears defend this resistance area, then the rebound would be a bull trap before a bearish continuation to lower lows.

However, breaking above the resistance makes things interesting for ADA. It opens the path to the previous lower high at $0.190 in early June. If Cardano reclaims and trades above this level while the broader market conditions start to improve, a durable bottom could start to form.

For now, the attention is on the buy signal from the TD Sequential and how Cardano will react to it.