After surging more than 10% on Tuesday, Dogecoin (DOGE) suffered from profit-taking on Wednesday and was last trading down around 3.5%.
Dogecoin hit its highest level since April at around $0.084 on Tuesday as traders hoped it could be integrated as a payment tool into Elon Musk’s X platform.
However, DOGE has since pulled back to less than $0.08 as several short-term technical indicators begin flashing signs of overbought conditions.
First, DOGE’s 14-day relative strength index (RSI) jumped above 70 on Tuesday, indicating that the market has entered overbought territory.
The last time Dogecoin’s RSI was above 70 in April, it was a trigger for significant profit-taking and a rapid market reversal.
Meanwhile, Dogecoin’s latest gains have pushed it above the upper limit of its 20-day Bollinger Band — the 20-day moving average at which the price has jumped more than two standard deviations, something that happens only 5% or less of the time.
Traders often interpret a Bollinger Band breakout as a sign that the market has gone too far.
It is not surprising that DOGE suffered a fall during profit-taking at high levels following signals from these two indicators.