Cardano (ADA) has made an impressive comeback in the past week, with its price surging by more than 60%. This sudden surge has attracted widespread attention, but as with any rapid market movement, questions are rising about how long the bullish momentum will last.

A 60% Surge: A Sign of a Bullish Breakout?

Over the past seven days, ADA has experienced a significant rise, with a 36% increase just in the last 24 hours alone. This surge has been a relief for many Cardano holders who had been underwater for a while, as the token’s price has outperformed many other cryptocurrencies during this time.

According to data from IntoTheBlock, more than 2.35 million ADA addresses have entered profit as a result of the recent price spike, representing more than half of the total addresses holding Cardano. This surge has renewed optimism among investors, many of whom have been waiting for a market rebound.

The rally is also being attributed to a bullish breakout pattern, first identified in December 2023, which had kept ADA in a consolidation phase for several months. The breakout from this pattern has resulted in over 40% in gains for ADA since its confirmation. Crypto analyst World of Chats highlighted this pattern in recent discussions, noting that the price action could signal the start of a sustained rally.

Bearish Signals: Could the Rally Be Short-Lived?

While the recent surge has been impressive, several market indicators suggest that Cardano might face a correction soon. For one, the Long/Short Ratio data from Coinglass has revealed a shift in market sentiment. The number of short positions has increased, suggesting that more traders are betting on a price decline. This could indicate that the recent rally is facing increasing resistance, and a pullback might be on the horizon.

Additionally, on-chain data from Santiment shows a small drop in the number of daily active addresses on the Cardano network. While the drop is modest, it signals a slight decrease in user activity, which could suggest that demand for ADA is starting to cool off. However, it’s important to note that these are minor signals, and the overall sentiment is still somewhat positive.

On a more positive note, Cardano’s trading volume has surged alongside its price, which is often a bullish sign. When volume rises as prices increase, it typically indicates strong investor confidence, which could provide the foundation for further gains. In addition, the MVRV ratio (Market Value to Realized Value) for ADA has spiked, suggesting that investors may be more inclined to hold their positions as profits rise.

Is Cardano Overbought? A Potential for a Price Correction

Despite the overall bullish sentiment, technical analysis suggests that ADA could be nearing overbought territory. The token’s price has risen sharply, pushing it well above the upper range of the Bollinger Bands, which indicates that ADA is trading at unsustainable levels. Historically, when prices reach such extreme levels, they often face a correction as the market adjusts.

The Relative Strength Index (RSI), another key indicator used to measure whether an asset is overbought or oversold, also shows that ADA is in the overbought zone. A reading in this zone typically signals that the token is due for a price pullback, as buying pressure may begin to wane.

Can Cardano Maintain the Momentum?

While Cardano’s recent surge is certainly noteworthy, it’s essential for investors to consider the possibility of a price pullback, especially given the overbought conditions and increasing short interest. The market often experiences corrections after strong upward movements, and Cardano is no exception.

However, the positive factors supporting the rally—such as rising trading volume, increased social media attention, and the token’s breakout from a consolidation phase—suggest that the bullish sentiment may continue in the medium term. If ADA can hold above key support levels during a potential pullback, it could bounce back and resume its uptrend.

What to Watch for Moving Forward

Traders and investors should keep a close eye on Cardano’s $0.65 to $0.70 support range. A sustained drop below this level could signal the beginning of a deeper correction. Conversely, if ADA can maintain its upward momentum and break through further resistance levels, the price could continue climbing, with the next major target being around $1.00.

In summary, while Cardano’s impressive 60% price increase in just seven days is certainly a positive development, it’s crucial to remain cautious. The combination of overbought conditions, increasing short positions, and slightly declining user activity suggests that a correction may be on the horizon. However, with strong bullish indicators still in play, Cardano could continue to outperform if it can hold key support levels. Investors should closely monitor the token’s price action in the coming days to gauge whether the uptrend will sustain or if a pullback is inevitable.