Polkadot (DOT) has shown signs of a bearish trend in recent days, and market analysts are now closely monitoring its price action. Despite a 16% increase over the past week, the altcoin’s recent chart pattern, combined with declining network activity, suggests that a correction could be imminent.

Head and Shoulders Pattern: A Bearish Signal

Polkadot has recently formed a classic head and shoulders pattern on its one-day chart, a technical formation that typically signals a shift from bullish to bearish momentum. The pattern consists of three peaks: a larger peak (the head) between two smaller ones (the shoulders). This formation is often followed by a significant decline once the price breaks below the neckline.

Currently, DOT is attempting to break through resistance at $7.56, the neckline of the head and shoulders pattern. However, the token has faced repeated rejections at this level, indicating a lack of buyer interest and weakening bullish momentum. The failure to break this key resistance could lead to further declines.

If the resistance continues to hold, it is likely that selling pressure will increase, and DOT may experience a sharp drop, potentially reaching as low as $3.47, which represents a more than 50% decrease from its current price of $7.20.

Technical Indicators Pointing to Bearish Momentum

The Chaikin Money Flow (CMF) indicator, which tracks the buying and selling pressure over a given period, is currently leaning towards the bearish side. As the CMF moves south, it suggests that selling pressure is outweighing buying interest. This is a strong indication that DOT could continue its downward trajectory in the near term.

In addition to the CMF, the Bollinger Bands Trend indicator has shown fading histogram bars, signaling weakening bullish momentum. These technical indicators further suggest that Polkadot may struggle to rally and could instead face a prolonged downtrend if buyers do not re-enter the market.

Impact of Declining Network Activity

Polkadot’s network activity has significantly decreased over the past few weeks. Key metrics such as revenue and the number of active users have fallen to multi-week lows. Token Terminal data reveals that Polkadot’s daily active users have dropped to just 4,200, the lowest level in the past 30 days. Additionally, daily revenues have fallen to $1,118, which signals reduced usage of the network.

The decline in network activity is concerning, as it could indicate waning interest from developers and users, further weighing down the price of DOT. If these trends continue, the bearish momentum could strengthen, pushing Polkadot prices lower.

Liquidation Zones and Potential for a Price Drop

Polkadot’s liquidation heatmap reveals an interesting development. At the current price level, there are no immediate liquidation levels above or below the market price, which could lead to price consolidation in the short term. However, a critical liquidation zone exists at $6.80. If DOT falls to this level, it could trigger a cascade of long liquidations, further accelerating the downward movement and pushing the price even lower.

The lack of liquidations above or below the current price suggests that traders may be hesitant to take on new positions, leaving DOT vulnerable to more significant price fluctuations once the market picks a direction.

Conclusion: A Price Drop to $3.47?

Polkadot’s technical setup, combined with declining network activity, signals that the altcoin could be heading for a correction. The formation of the head and shoulders pattern, along with bearish technical indicators, suggests that the price could soon face downward pressure. If Polkadot fails to reclaim the $7.56 resistance, it could drop significantly, with $3.47 as a potential target.

Traders should keep an eye on Polkadot’s price action, as a break below the neckline of the head and shoulders pattern could signal a more substantial decline. Additionally, monitoring network activity and liquidation levels will be key in assessing the potential for further price drops. While there is still a chance for Polkadot to reverse the trend, the current technical outlook leans towards a bearish future.