Stellar’s XLM token has seen a notable increase of 6% over the past week, currently trading at $0.28 as the broader cryptocurrency market experiences a recovery. However, while the token has gained momentum, a key technical indicator is signaling that the rally may not be sustainable, raising concerns about a potential price reversal in the near term. Investors holding XLM should consider the warning signs flashing in the market.

XLM’s Recent Gains Amid Market Recovery

In the last week, XLM’s price climbed alongside the overall crypto market, benefiting from the positive sentiment sweeping through the digital asset space. The altcoin’s performance has been a welcome relief to investors after a period of stagnation, with a solid 6% increase in value. However, despite this positive movement, XLM may face challenges in maintaining its upward trajectory.

Bearish Divergence with Chaikin Money Flow

A critical indicator that suggests XLM’s rally could be short-lived is the bearish divergence forming with the Chaikin Money Flow (CMF). The CMF measures the buying and selling pressure in an asset by evaluating price movements and volume. Currently, while XLM’s price has been climbing, the CMF has been declining and remains below the zero line at -0.10.

This divergence indicates that, although the price is rising, there is weakening buying pressure behind the move. Essentially, fewer investors are supporting the price increase with fresh capital, which makes the uptrend potentially unsustainable. In such a scenario, the token could experience a reversal or correction if the divergence continues to widen.

XLM’s Funding Rate Turns Negative

In addition to the bearish divergence with the CMF, another concerning development for XLM holders is the negative funding rate. The funding rate for XLM has turned negative for the first time in six days, signaling a growing bearish sentiment in the market. At the time of writing, the funding rate stands at -0.0018%, indicating that short traders dominate the market.

A negative funding rate reflects that more traders are betting on the price of XLM to decline. This growing dominance of short positions implies that the overall market sentiment is turning negative. If the negative sentiment persists, XLM’s price could face significant downward pressure, making a reversal more likely.

Price Outlook: Risk of Further Decline

XLM’s price has been in a sustained downtrend since reaching a three-year high of $0.63 in November. Since then, the token has experienced a sharp 55% decline, and it now trades within a descending parallel channel. This channel indicates that XLM is trapped in a bearish structure, which could lead to further losses.

If the bearish momentum continues, XLM could potentially breach the lower trendline of the descending channel. Such a move would place the token at risk of dropping to around $0.23, representing a further 17% decline from its current level. Additionally, if the negative divergence and bearish sentiment persist, the likelihood of a significant price drop increases.

Possible Bullish Scenario

Despite the negative technical indicators, there is still a possibility for XLM to turn the tide. If accumulation resumes, XLM could break past the immediate resistance level at $0.30. A successful move above this level would open the door for the altcoin to attempt a rally towards the $0.41 resistance.

However, for this bullish scenario to unfold, the broader market sentiment would need to remain positive, and XLM would need to regain the support of investors. Until then, the token’s bearish divergence and negative funding rate remain concerns for those holding XLM.

Conclusion

While Stellar (XLM) has posted a 6% gain in the past week, technical indicators, such as the bearish divergence with the CMF and the negative funding rate, suggest that this upward movement may not be sustainable. Investors should remain cautious, as XLM could face further declines if the bearish trend continues. However, if the token can regain support and break key resistance levels, there could be room for a potential price recovery. As always, traders should keep a close eye on market conditions and adjust their strategies accordingly.