DeFi token AAVE eyes 40% rally in May but ‘bull trap’ risks remain

A pointy rebound transfer witnessed within the Aave (AAVE) market within the final three days has raised its potential to rise additional in Could, a technical indicator suggests.

AAVE worth rebounds from key help

Dubbed a “rising wedge,” the sample seems when the value rises inside a spread outlined by two ascending, contracting trendlines. It sometimes resolves after the value breaks under the decrease trendline with convincingly rising volumes.

AAVE has been portray an identical ascending channel since early February 2022. The AAVE/USD pair has bounced prior to now few days after testing the wedge’s decrease trendline as help. This implies the bulls are actually eyeing the sample’s higher trendline close to $280, up over 40% from April 20’s worth.

AAVE/USD day by day worth chart. Supply: TradingView

The upside goal additionally coincides with the extent that has served because the resistance between November 2021 and January 2022. It was additionally instrumental in capping AAVE’s draw back makes an attempt throughout July-October 2021.

“Bull entice” ranges to observe

As famous earlier, rising wedges are thought of bearish reversal patterns by many conventional analysts. It signifies that AAVE’s run-up to $280 won’t rework right into a full-fledged bull run. As a substitute, the chance of the token correcting decrease seems greater.

Furthermore, AAVE’s worth might additionally endure an early pullback after hitting its 200-day exponential shifting common (200-day EMA; the blue wave within the chart above) close to $208, suggesting an imminent breakdown.

As a rule, a rising wedge breakout leads to the value falling to a goal that’s measured after including the space between the patterns’ higher and decrease trendline to the breakout level.

AAVE/USD day by day worth chart that includes ‘rising wedge’ breakout setup. Supply: TradingView

Due to this fact, relying on the extent at which AAVE breaks down from its rising wedge, the bearish situation goal turns into $105 and $124 by the tip of Q2.

Key “bull flag” ranges to observe 

Switching to the weekly timeframe charts reveals AAVE in a month-long descending channel sample that appears like a “bull flag.”

Bull flags are bullish continuation indicators that floor when the value consolidates decrease inside a parallel vary after a interval of a robust uptrend.

In idea, they resolve after the value breaks above the vary’s higher trendline decisively, adopted by an prolonged upside transfer equal to the peak of the earlier rally (known as flagpole).

Associated: Aave v3 launch triggers 50% rally from long-term descending channel sample

The bull flag situation now places AAVE vulnerable to testing the construction’s decrease trendline close to $109, which coincides with its 200-week EMA. Curiously, the extent can also be close to the rising wedge’s interim draw back goal, as mentioned above.

AAVE/USD weekly worth chart. Supply: TradingView

However the flag setup signifies that AAVE’s long-term bias is to the upside. Therefore, the pair might rebound from the decrease trendline to a roughly $900 bull flag goal in 2022-2023, up about 400% from April 20’s worth.

Conversely, a decisive break under the 200-day EMA might expose AAVE to additional selloffs, with the subsequent draw back goal sitting close to $72, a historic help/resistance degree.

The views and opinions expressed listed below are solely these of the writer and don’t essentially mirror the views of Cointelegraph.com. Each funding and buying and selling transfer entails threat, it is best to conduct your personal analysis when making a call.