DeFi token AAVE faces major correction after soaring 100% in a month

Over 50% of AAVE's recent gains came after Aave companies offered to launch a native stablecoin.

Altcoin Watch

The price of Aave (AAVE) has more than doubled in a month, but its bullish momentum may reach an exhaustion point.

AAVE Price Tests Key Inflection Level

Notably, AAVE jumped over 103% after hitting a local low at $45.60 on June 18, reaching near $95.50 on July 15. Nonetheless, the token’s upward retracement move brought its price closer to the level that triggered similarly large pullbacks. since early June.

In other words, AAVE has tested an ascending trendline resistance which constitutes a “bearish flag”, a bearish continuation pattern. For example, the previous test of the July 9 trendline resulted in a 20% downside move. Similarly, a similar attempt on June 24 caused the price of AAVE to drop nearly 30%.

Daily price chart AAVE/USD. Source: TradingView

Due to this distribution behavior, AAVE's continued attempt to break above the flag's trendline may encounter extreme selling pressure. A pullback could then see AAVE/USD retest the flag's lower trendline near $67.75 as a downside target through September, down nearly 30% from July 15th price.

Meanwhile, the $76.30 level serves as interim support, primarily due to its May low price history that preceded a 60% rebound move.

Bear Flag Outage Scenario

As a rule of thumb of technical analysis, the breakdown below $67.75 could see AAVE plunge as much as the height of the "mast" that formed before the bear flag. This would have a symbolic target of $35.50 as the bearish flag profit target, down more than 60% from the current price.

Daily AAVE/USD price chart with ' bear flag' split configuration. Source: Tr...