Polygon [POL], one of the leading blockchain networks, continues to face headwinds as its price plummeted 12% in just 24 hours, trading at $0.457 at press time. This sharp decline reflects a broader downward trend over the past month, with Polygon shedding 33% of its value.

The drop in price coincided with a notable spike in trading volumes, which surged by 33% to $248 million, according to CoinMarketCap. This increase in activity, however, has been largely attributed to sell-side pressure, contributing to a bleak market sentiment. Alarmingly, 91% of Polygon wallet holders are now in losses, exacerbating the bearish outlook.

Oversold RSI Recovery Hopes

Amid the ongoing challenges, Polygon’s Relative Strength Index (RSI) offers a potential silver lining. The RSI has dropped to a value of 23 on the four-hour chart, a level last seen in mid-December. An RSI below 30 typically indicates that an asset is oversold and could be due for a price rebound.

Historically, Polygon has shown a tendency to recover when its RSI reaches oversold levels, and this trend could repeat. If buyers take advantage of the current RSI as an entry point, the token might experience a bullish reversal, with prices potentially climbing to $0.538.

However, the Average Directional Index (ADX) suggests caution. This indicator, which measures trend strength, shows that the bearish momentum is still gaining traction. Should this trend persist, Polygon could face further declines, with the next critical support level at $0.416 based on Fibonacci retracement.

dApp Activity Offers Mixed Signals

While Polygon’s price struggles, its decentralized application (dApp) ecosystem shows some positive activity. Data from DappRadar reveals that dApp volumes surged by 18% in the past 24 hours, reaching $244 million. This marks the highest daily volume in nearly a week.

Despite this short-term boost, the broader picture remains less optimistic. Monthly dApp volumes are down 37%, and the number of Unique Active Wallets (UAWs) has also declined. The decrease in transaction activity further underlines the challenges Polygon faces in maintaining consistent network engagement.

These metrics suggest that while Polygon’s dApp ecosystem retains pockets of strength, it has yet to translate into broader market confidence or price stability.

Long/Short Ratio Reflects Persistent Bearish Sentiment

Adding to the bearish narrative, Polygon’s Long/Short Ratio has dropped to 0.885. This ratio, which compares the number of long positions to short positions, indicates that short sellers currently hold a slight advantage.

When bearish momentum dominates, short traders often increase their bets on further price declines, which can heighten market pressure. However, this scenario also raises the possibility of a short squeeze. If short positions are forced to close due to unexpected price increases, it could trigger a wave of buying activity that temporarily pushes prices higher.

What’s Next for Polygon?

Polygon stands at a critical crossroads. While the oversold RSI provides a beacon of hope for a potential price rebound, other indicators, such as the ADX and Long/Short Ratio, highlight the risks of further declines.

If buyers seize this moment to push prices upward, Polygon could recover to $0.538, signaling a temporary respite from its bearish trajectory. On the other hand, continued sell-side pressure could see the token slide further, with $0.416 as the next significant support level.

The recent uptick in dApp activity suggests that Polygon’s ecosystem remains active, but it may not be enough to reverse the prevailing sentiment. Investors and traders will be closely monitoring the interplay of market forces in the coming days to gauge whether this is merely a temporary slump or a sign of deeper issues.