Chainlink (LINK) is encountering a tough battle after a recent rally, with traders watching closely as the cryptocurrency approaches critical support and resistance levels. After gaining momentum with a 22% rise, LINK’s price has hit significant hurdles, leading to a fresh downturn and raising questions about whether it can sustain its upward trend.

Recent Price Action Shows Signs of Weakness

In the past 24 hours, Chainlink’s price slipped approximately 5.25%, settling near $14.40 at the time of writing. This decline follows a sharp rally, indicating that sellers have stepped in around major resistance points. Trading volume also dropped by about 11%, suggesting a decrease in enthusiasm among investors.

Additionally, on-chain data shows a decline in user engagement. The number of daily active addresses interacting with the Chainlink network fell by 13%, reflecting waning activity that often correlates with weakening momentum. This dip in on-chain participation further underlines the challenges facing LINK at this stage.

Bears Gain Momentum as Shorts Increase

Market sentiment is showing signs that bearish traders are positioning for a price correction. Short positions, where traders bet on the price falling, have surged alongside LINK’s recent price drop. This increase in shorts suggests that many investors expect further declines, at least in the short term.

According to data from CoinGlass, two key price levels are under scrutiny. The $14.25 level is identified as a critical support, while $15.77 acts as strong resistance. If LINK breaks below the $14.25 support, it could trigger liquidations worth nearly $2.9 million from long positions—those betting the price will rise.

On the other hand, if the price can overcome resistance and move above $15.77, traders holding short positions could face liquidations totaling over $15 million. Currently, market capital seems stacked against Chainlink breaking above resistance, indicating a cautious outlook from investors.

Technical Indicators Point to Possible Downtrend

Chainlink’s technical charts reveal repeated failures to breach two significant barriers: the descending trendline and the 200-day Exponential Moving Average (EMA). Each attempt to climb past these levels has ended with sharp price reversals, creating a pattern of lower highs. This pattern is often a bearish signal, suggesting sellers are dominating the market.

The repeated rejection near the 200-day EMA—a widely followed moving average in trading—adds weight to the idea that LINK might be preparing for a deeper correction. If the $15.77 resistance level cannot be surpassed and turns into a new ceiling, LINK’s price may fall further.

Some analysts suggest the next key downside target could be around $12.70, representing an additional 10% drop from current levels. Such a correction would test Chainlink’s longer-term support and could influence trader sentiment moving forward.

What Traders Should Watch Next

Investors and traders should closely monitor LINK’s price movements around these crucial levels. A successful break above $15.77 with strong volume and momentum could signal renewed strength and a possible continuation of the recent rally.

Conversely, if the price fails to hold $14.25, it might indicate the start of a more significant pullback. Traders should watch for liquidation cascades in either direction, which could accelerate price moves due to forced selling or buying.

Beyond price, keeping an eye on on-chain activity like daily active addresses will provide insights into the health of the network’s user base. Sustained drops in network participation often precede price declines, while rising activity can support bullish trends.

Summary

Chainlink is at a critical crossroads after a strong rally, facing stiff resistance near $15.77 and testing important support at $14.25. The recent decline, falling trading volume, and rising shorts indicate increased selling pressure, while technical indicators warn of a potential correction.

Until LINK decisively breaks above resistance or falls below support, the cryptocurrency is likely to remain range-bound with elevated volatility. Traders should prepare for swift moves as the market chooses its next direction.