Terra (LUNA) price analysis 22 Dec: uptrend may face headwinds

Terra (LUNA) remains in a strong uptrend but could meet resistance soon

Representation of LUNA coin sandwiched between red and blue digital clouds                                 
Can Terra (LUNA) continue its strong uptrend? – Photo: Shutterstock
                                

Terra’s LUNA token has risen more than 14,000% in 2021 and it has become the ninth-largest cryptocurrency by market capitalisation. Coindesk reported that the Terra network has overtaken Binance Smart Chain to become the second-largest network for decentralised finance (DeFi), with more than $20bn (£,€) locked in value, according to data from DefiLlama.

Along with DeFi, Terra’s popularity of its stablecoin UST may also have boosted the price of the LUNA token. UST became the largest decentralised stablecoin when it overtook Ethereum’s DAI stablecoin recently.

Jeremy Ong, vice president of business operations at the crypto research firm Delphi Digital, said: “LUNA’s price is a function of UST demand. As UST demand goes up, LUNA’s price also goes up,” Coindesk reported.

Delphi Digital said in a report that LUNA’s price increase may have been “triggered by investors buying spot LUNA to lock up in the Astroport lockdrop, then hedging their position via perpetual futures to remain delta neutral”.

Astroport is an automated market maker, aiming to enhance liquidity for all assets on the Terra network. 

Could Terra (LUNA) go up and build upon the recent strength? Read the LUNA price analysis to find out.

LUNA price technical analysis: weekly chart

Chart illustrating uptrend in price of LUNA from September last year until December 2021
LUNA price technical analysis (weekly), 22 December 2021 – Credit: Currency.com

LUNA’s price has been in a strong uptrend for the past few months. The corrections have been shallow, with the main trend reasserting itself quickly. This suggests that traders continue to buy on every minor dip.

The LUNA/USD pair has risen more than 60% in December, suggesting that the momentum remains strong. However, the sharp rally of the past few days has pushed the relative strength index (RSI) above 80, indicating that the rally may be getting overheated in the short term.

The psychological mark at $100 may attract profit-booking by short-term traders, but if the pullback is shallow, the possibility of the continuation of the uptrend increases. The pair could then rally to $130 and later to $150.

LUNA price technical analysis: daily chart

Chart illustrating price of LUNA from before April to December this year, including a rising wedge pattern
LUNA price technical analysis (daily), 22 December 2021 – Credit: Currency.com

LUNA’s price had been trading inside a rising wedge pattern, which generally signals a bearish reversal. However, aggressive buying from close to $50 levels pushed the price above the resistance line of the wedge on 21 December.

This invalidates the bearish setup, which may prove to be a bullish sign because bears who had initiated short positions anticipating a reversal may rush to the exit, resulting in a short squeeze. 

The first barrier is at $100. If the price turns down from this level but bounces off the breakout level of the wedge, it will suggest that the sentiment remains bullish and traders are buying on dips. The buyers will then attempt to resume the uptrend and push the price to the first target objective at $110.

Contrary to this assumption, if the price turns down and breaks back into the wedge, it will suggest that the current breakout may have been a bull trap. If the price sustains inside the wedge, the bulls may dump their long positions, leading to a sharp decline.

The first support on the downside is $75 and if this level cracks, the drop could extend to the strong support at $53.

LUNA: Buy or sell this week?

LUNA’s price analysis shows that buyers are in control. The bears may attempt to stall the up-move at $100 but if the subsequent pullback is shallow, the prospects of the continuation of the uptrend remain high. A break and close inside the rising wedge will be the first sign that the bulls may be losing their grip.

The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks and you should do your own research or contact your financial adviser before arriving at a decision.

LUNA to US Dollar
Daily change
81.0559
Low: 77.5452
High: 81.0559

Further reading

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