The daily chart shows that the price of XLM skyrocketed last week, reaching a high of $0.5145 as the cryptocurrency market rally intensified. This increase significantly pushed it above its recent moving averages, while oscillators such as the stochastic and the relative strength index (RSI) reached extreme overbought levels.
The main risk facing the price of Stellar is known as mean reversion. This refers to a situation where assets that have deviated significantly from their moving averages revert back towards them.
In the case of XLM, its current price of $0.45 is much higher than the 50 and 100-day moving averages of $0.2900 and $0.2837, respectively. Therefore, the token could drop by 40% to approach both averages.
XLM recorded a mean reversion last November when it rose nearly 500% and deviated from its moving averages. It subsequently fell gradually to close that gap months later.
The other risk facing the price of Stellar Lumens is that it has significantly deviated from the upper side of the descending channel that connects the higher and lower swings since December of last year.
In most cases, an asset usually retraces and retests previous resistance after a strong breakout. This situation is known as a breakout and retest pattern and is often a very bullish signal.
Therefore, the most likely scenario is that the price of XLM drops approximately 40% and then resumes its upward trend. The bullish price forecast for Stellar will be invalidated if it surpasses the year-to-date high of $0.5155.