XRP bearish divergence raises chance of $2 retest — Here’s what bulls must do

XRP’s (XRP) price registered a multimonth range low at $1.78 during its recent correction before swiftly recovering above $2.50 on the daily chart.

However, the altcoin faces a critical test to invalidate a key bearish signal, possibly turning the tides in the seller’s favor.

XRP shows bearish divergence on the daily and weekly chart

XRP’s parabolic rally over the past three months took its value from $0.50 to its all-time high range at $3.40, i.e., a 580% rise. The altcoin disrupted multi-year resistance levels, and in January, XRP recorded its highest monthly close at $3.03.

The recent flash crash due to a non-crypto political event implied that buyers’ liquidity is slowly evaporating on the upside. With the markets riddled with volatility, XRP’s long-term chart painted the formation of a bearish divergence on both the daily and weekly charts.

As illustrated in the chart, XRP’s price has formed a higher high over the recent weeks, whereas its relative strength index (RSI) has formed a lower high. The RSI indicator on both charts also trended down from an overbought region, which means buyers are slowing down and losing momentum.

While XRP has managed to invalidate previous divergences formed on the lower time frames (LTF), a bearish divergence on the 1-day and weekly chart raises concerns since high-time frame (HTF) charts determine a more dominant trend.

The potential consequence of these bearish divergences is another move below $2, which is a 23% drop from its current value. The probability has also increased since the altcoin formed a new low at $1.78, where new liquidity pockets will be formed.

Related: Why is XRP price up today?

Will XRP invalidate its bearish thesis?

A fundamental part of technical analysis is that each signal or pattern has an invalidation. Likewise, XRP’s bearish divergence on the daily and weekly chart could also be dismissed if the altcoin can retain a position above $2.90 on the daily chart.

The $2.90 level was XRP’s previous higher high formed in December, which also acted as a support level after XRP re-tested its previous all-time high at $3.40. Binance and Coinbase spot activity was also largely concentrated around $2.90, which sent the altcoin above $3 in mid-January.

A recovery above $2.90 would re-establish a bullish market structure, diminishing the effects of XRP’s recent bearish lows. However, time is of the essence in these conditions, as a continued lack of clear directional bias favors the bears since sellers were the market movers for the last major price move.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision