A weak gap in XRP price is discovered and expected to fall to $2.28

January’s XRP (XRP) price rally risks reaching an exhaustion point due to a new bearish reversal signal.

XRP price chart suggests 25% correction

XRP surged nearly 50% in January, briefly surpassing $3.39 on January 18, its highest level in nearly seven years. But the explosive rally could face headwinds, with technical indicators suggesting a potential downside correction of up to 25%.

The main concern is the emergence of a bearish divergence between the price of XRP and the daily Relative Strength Index (RSI). While XRP is hitting multi-year highs, the momentum oscillator RSI is trending downward, forming a bearish pattern.

These differences indicate that the upward momentum of the XRP rally is waning and a reversal is more likely in the coming days and weeks.

Additionally, the price of XRP is well above the 50-day exponential moving average (50-day EMA, red wave), which is a key technical support level.

As of January 18, the 50-day EMA is close to $2.28, about 25% below XRP’s current price of $3.07. Historically, overextended price rallies tend to revisit EMA levels as traders lock in profits and the market stabilizes, as seen in the 80% correction after the 2018 bearish divergence signal below.

Moreover, XRP’s recent rally has pushed the RSI reading to 66.87, approaching the overbought threshold of 70.

Although not yet overbought, the downward trend in RSI suggests that buying pressure is waning from current levels, which could amplify selling pressure towards the $2.28 downside target.

Are the XRP bulls over?

As mentioned above, a bearish divergence in XRP increases the likelihood of a decline towards $2.28. This is consistent with the upper trendline of a typical bullish flag pattern.

A bull market pattern forms when price consolidates inside a downward parallel channel following a strong upward trend. This is usually resolved when the price crosses the upper trend line and rises by the height of the previous uptrend.

XRP has already entered the breakout phase of the bull flag pattern. However, after a breakout, price often retests the pattern’s upper trendline, confirming it as a new support level.

These retests validate the breakthrough and provide an entry point for new buyers. A successful bounce from the upper trendline strengthens the bullish position and sets the stage for a move higher towards the original upside target.

For XRP, the bull flag upside target is around $4.42, a 40% increase from current price levels. Additionally, the long-term outlook for XRP remains optimistic, driven by the possible launch of a spot XRP exchange-traded fund (ETF) in the United States.

relevant: ChatGPT said that if a spot ETF is approved, an XRP price of $10-$50 is ‘feasible’.

JP Morgan analysts predict the fund could raise $4 billion to $8 billion in assets under management.

If XRP price fails to remain above the flag’s upper trendline, there is a risk that the bullish setup will be completely invalidated. In this scenario, the next downside target could be the pattern’s lower trendline near $1.90, a level that would prevent a decline for XRP in December.

A break below $1.90 would turn the trend decisively bearish, potentially opening the door to a deeper decline towards the 200-day EMA (blue wave) near $1.35.

This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.