Stellar (XLM), the native token of the Stellar network and a competitor to XRP, is currently at a pivotal point. The asset has been showing signs of weakness, forming a bearish pattern that could lead to a significant decline. While it is still holding above a crucial support level, ongoing bearish sentiment and declining market momentum suggest a potential breakdown.

With traders closely watching XLM’s price action, the token now stands at a make-or-break level. If key support fails, a sharp 30% drop could be on the horizon.

Bearish Pattern Signals Trouble for XLM

Technical analysis reveals that XLM has formed a bearish head and shoulders pattern on the four-hour timeframe, a classic signal that a downtrend could be imminent. The asset is currently testing its neckline support, a critical level that could determine its next move.

If XLM breaks below this neckline and manages to close a four-hour candle under $0.265, historical price trends suggest that the token could drop as much as 30%, bringing it down to around $0.19.

Key Bearish Indicators:

• Head and Shoulders Formation: A widely recognized reversal pattern, often leading to a sharp price decline.
• Break Below 200 EMA: XLM has already fallen beneath the 200 Exponential Moving Average (EMA) on both daily and four-hour charts, signaling a bearish outlook in both short-term and long-term trends.
• Declining Momentum: The market’s ongoing sell-off is increasing downward pressure, making it harder for bulls to defend key levels.

Current Market Conditions—XLM Under Pressure

At present, XLM is trading near $0.275, reflecting a loss of over 4.5% in the last 24 hours. Adding to the bearish concerns, trading volume has dropped 35%, signaling a decrease in market participation. This suggests that traders are showing less interest in XLM at current levels, which could make the asset more vulnerable to further declines.

Traders Are Over-Leveraged—Bearish Signals Increase

On-chain data from Coin glass indicates that traders have taken over-leveraged positions around key levels. At the lower end, $0.27 is acting as a strong support zone, while on the upper side, $0.285 has emerged as a key resistance level.

Key Observations from On-Chain Data:

• Long Positions at Lower Levels: Traders have accumulated $500K worth of long positions around $0.27, hoping for a price rebound.
• Heavy Positions at Resistance: At $0.285, traders have built $2 million worth of leveraged positions, indicating strong resistance.
• Bears Dominating the Market: Given the imbalance between these positions, it suggests that sellers currently have the upper hand, increasing the likelihood of a downside move.

What’s Next for XLM—Crash or Recovery?

XLM’s fate hinges on whether it can hold above the crucial support level of $0.265. If bears push the price below this mark, the token could experience a sharp 30% drop toward $0.19.

However, if bulls manage to defend this level and push the price back above $0.285, it could trigger a short-term relief rally, invalidating the bearish setup.

Potential Scenarios for XLM:

1. Bearish Case: If the price breaks below $0.265, selling pressure will likely intensify, pushing XLM toward the $0.19-$0.20 range.
2. Bullish Case: If buyers step in and reclaim $0.285, it could attract fresh demand, with XLM attempting a recovery toward $0.30 and beyond.

With traders and investors closely watching these levels, the next move could determine the direction of XLM for the coming weeks. Will Stellar bulls hold the line, or is a major breakdown inevitable