Stellar (XLM) has been one of the more volatile altcoins in the market, and its recent price action has once again fueled speculation about its future trajectory. The cryptocurrency experienced an 8% pullback recently, after a massive 173% rally the previous week. Despite this retracement, XLM has defended a key support level, leaving traders wondering whether a potential rebound to its 2021 highs is still in the cards.

The Recent Pullback and What it Means

Stellar topped the weekly losers list on CoinMarketCap after its price fell by 8%. While a pullback after a significant rally can be considered healthy and typical in the crypto market, investors are now left questioning if the pullback is a temporary consolidation or the start of a more prolonged decline.

Looking at the weekly chart, the price of XLM managed to defend the critical support level at $0.40, which is seen as a key point in determining its near-term future. The defense of this level raises the possibility of XLM attempting to test its 2021 highs around $0.79 or higher.

However, it’s essential to consider other indicators and the overall market sentiment when evaluating the sustainability of this potential rally.

Chaikin Money Flow (CMF) and Record Inflows

One positive sign for XLM is the uptick in Chaikin Money Flow (CMF), which measures the money flowing in and out of an asset. The CMF suggests that there were strong inflows into XLM, indicating that buyers are still active, despite the recent pullback. This increased activity could potentially fuel the next leg of the rally if XLM continues to build enough momentum above the $0.40 support level.

However, while CMF showed promise, the 12-hour chart paints a different picture. The CMF on this shorter time frame has been flat since November 20, suggesting that inflows have stagnated, which could limit the potential for an extended rally in the short term. The lack of strong upward momentum could leave XLM to range between $0.40 and $0.62, a period of consolidation before any significant breakout.

The Role of Whale Activity

Whale activity, or the movements of large investors, often has a significant impact on the price action of altcoins. In the case of XLM, whale positioning seems to support the outlook of consolidation. After a massive rally, whales took profits and exited long positions, which can contribute to the current price stagnation.

The Whale vs. Retail Delta, which compares the trading behavior of large investors to smaller retail traders, turned negative, suggesting that whales have retreated from the market. This shift in market sentiment often leads to price consolidation or retracements, as seen with XLM’s current price action. In other words, the absence of whale activity could delay the continuation of the uptrend, as these large players typically provide liquidity and fuel significant price movements.

Average Directional Index (ADX) and Trend Strength

To further assess the strength of XLM’s trend, the Average Directional Index (ADX) has been under scrutiny. The ADX, which measures the strength of an asset’s trend, recently dropped from nearly 80 to 21, signaling a weakening of the current uptrend. A further drop below 20 would reinforce the notion of a weak trend, which would make it difficult for XLM to sustain any upward momentum without a change in market conditions.

For swing traders and investors looking for clear entry points, this decrease in trend strength makes it difficult to make confident trading decisions. A dip below $0.40 could open the door for further downside, but if XLM can remain above this support level, the possibility of a rebound could still be on the table.

Conclusion

In summary, Stellar’s recent price action suggests that while an uptrend continuation is possible, it may take longer than expected due to the lack of strong momentum and whale activity. The 8% pullback after a major rally is not uncommon, and the defense of the $0.40 support level provides some hope for those looking for a rebound to the 2021 highs of $0.79. However, with weak trend strength and declining whale interest, a short-term consolidation period between $0.40 and $0.62 seems likely.