Aave [AAVE], a prominent player in the decentralized finance (DeFi) space, has recently attracted significant attention due to a possible bearish trend forming on its daily chart. Despite recent buying activity by large investors, a popular analyst has highlighted a sell signal that could indicate an impending 27% price correction.

The Sell Signal and Its Implications

Crypto analyst Ali Martinez recently posted on X (formerly known as Twitter) that the TD Sequential indicator has flashed a sell signal on AAVE’s daily chart. Historically, this signal has been followed by an average price drop of 27%. If this correction materializes, AAVE’s price could plummet from its current level to around $100, marking a significant decline.

This bearish outlook contrasts sharply with the recent bullish momentum observed in AAVE’s price action. The token recently reached the $140 resistance zone, a level it had previously tested back in March. Despite this, the resistance proved too strong, leading to a rejection and the possibility of a deeper retracement.

Bullish Indicators vs. Overvaluation Concerns

AAVE’s daily chart shows a strong bullish structure with momentum indicators, such as the On-Balance Volume (OBV), making new highs. The OBV’s increase indicates substantial buying pressure, typically a positive sign for future price movements.

Moreover, whale activity has surged recently, with one whale reportedly purchasing $10.4 million worth of AAVE in a single day. This accumulation trend is usually seen as a bullish indicator, suggesting that large investors have confidence in AAVE’s long-term potential.

However, not all metrics paint a rosy picture. The 30-day Market Value to Realized Value (MVRV) ratio has reached its highest level since early March, signaling that AAVE might be overvalued. When short-term holders are sitting on significant profits, it often leads to increased selling pressure as these investors look to lock in gains.

The Technical Analysis

A closer look at AAVE’s price action reveals that the $140 resistance zone coincides with the 100% Fibonacci extension level at $142.58, adding to the significance of this barrier. The inability to break through this level could reinforce the likelihood of a price correction.

Additionally, the TD Sequential indicator, known for identifying trend reversals, has flashed a sell signal, which in the past has preceded notable price drops. If the predicted 27% decline occurs, AAVE could see its price fall to the $100-$105 range.

Mixed Signals and Market Outlook

Despite the bearish signals, some on-chain metrics suggest that the broader outlook for AAVE might not be entirely bleak. The falling mean dollar invested age, for instance, indicates increased token circulation and new investments, which is typically a bullish sign.

Given these mixed signals, the most likely scenario for AAVE could involve a retracement towards the $105-$115 range, followed by a potential rally. Investors should closely monitor key support levels and be prepared for possible volatility in the near term.

Conclusion

AAVE’s recent price action and technical indicators suggest a complex outlook. While there are clear signs of bullish momentum and whale accumulation, the flashing sell signal from the TD Sequential indicator raises concerns about a possible 27% price correction. As AAVE hovers around key resistance levels, the coming days will be crucial in determining whether this DeFi token will face a significant downturn or if it can maintain its upward trajectory.