Dogecoin (CRYPTO: DOGE) was soaring over 13% higher at one point on Monday, which caused the crypto to negate a downtrend that began on April 5 when Dogecoin spiked up to and topped out at the 18-cent level.
The surge higher came following reports Tesla, Inc (NASDAQ:TSLA) CEO Elon Musk is entering a deal to acquire Twitter, Inc (NYSE:TWTR), and many are hopeful that if Musk acquires the social media company, Dogecoin will be integrated in some way.
Technically, Dogecoin looked set to break higher because its downtrend was taking place beneath a descending trendline.
A descending trendline acts as a resistance level and indicates there are more sellers than buyers even though the price continues to fall. When a stock or crypto breaks up from the trendline, it indicates a large reversal may be on the horizon.
In order for a trendline to be considered valid, the stock or crypto must touch the line on at least three occasions. After that, the more times the trendline is touched, the weaker it becomes.
- Bullish traders can watch for a stock or crypto to break up from the descending trendline and, if the break occurs on high volume, can indicate the downtrend is over and a rally may be on the horizon. It's possible the stock or crypto may fall down to back-test the descending trendline as support before heading higher again.
- For bearish traders, “the trend is your friend” until it’s not, and a touch and rejection of the descending trendline can offer a good short entry. A bearish trader would stop out of this type of trade if the stock or crypto broke above the trendline.
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The Dogecoin Chart: Dogecoin broke up from the descending trendline on higher-than-average volume, which indicates the descending trendline was a recognized pattern. At press time, Dogecoin’s volume was measuring in at a whopping 580 million on Coinbase compared to the 10-day average of 151.77 million.
- The break up from the trendline was strong enough that Dogecoin was able to negate its downtrend by printing a high above the most recent lower high, which was formed on April 20 at the $0.146 mark. If the crypto is about to reverse course into an uptrend, it will eventually have to print a higher low, which could also provide bullish traders and investors with a solid entry point.
- If Dogecoin closes the trading day near its high-of-day price, it will print a bullish engulfing candlestick, which could indicate higher prices will come again during Tuesday’s 24-hour trading period.
- The second most likely scenario would be that the crypto prints an inside bar pattern next, which would lean bullish.
- If Dogecoin closes the trading day with a long upper wick, it may indicate lower prices are in the cards and traders and investors could then watch for a reversal candlestick such as a doji or hammer to develop above the descending trendline.
- Dogecoin has resistance above at $16 cents and $0.176 and support below at the $0.146 and the $0.135 levels.
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