Dogecoin (DOGE)’s brief price rally last week after Tesla CEO Elon Musk offered to buy Twitter appears to be ending as DOGE closes the week 8% lower.
The price of DOGE dropped to $0.142 on April 17, three days after peaking at $0.149. Dogecoin’s correction, although modest, has increased its potential to trigger a classic bearish reversal with an 85% success rate on its downside target.
Called a head and shoulders (H&S), the pattern appears when price makes three peaks in a row, and the middle one, called the “head”, is between two others that are almost the same height and are thus called left and right “shoulders”. These three peaks are held above a common support level called the neck. As the theory goes, the price usually breaks below the support level after the formation of the third peak or right shoulder and falls to the maximum height of the H&S. It looks like DOGE has been forming a similar structure since at least March 24th. The cryptocurrency is now looking for a fall after a right shoulder formation followed by a full bearish breakout as shown in the chart below.
As a result, the likelihood of Dogecoin correcting towards the H&S low around $0.132 seems higher, about 7.5% below today’s price. The level coincides with the DOGE 50-day SMA (50-day SMA; wave blue), thus providing additional support. A decisive break below the support confluence could trigger the H&S, with a downside target below $1, nearly 30% below today’s price. Interestingly, the target appears to be close to the lower trend line of the descending channel pattern that has been accompanying Dogecoin price movements since December 2021.
Musk continues to be an influential catalyst for Dogecoin’s mid-price trends. The news that he bought a 9.2% stake in Twitter on April 4 helped push the price of DOGE over 20% to $0.174 the next day, the best level in almost three months. A correction ensued as traders locked in interim profits, only for DOGE’s price to bounce back after Musk showed intent to acquire Twitter in its entirety for $43 billion.
Enthusiasts believe the “mask effect” and its growing influence on Twitter could boost Dogecoin’s adoption and price, a sentiment echoed by Robinhood CEO Vladimir Tenev, who said earlier this week that DOGE could become the “currency of the Internet.” Musk has supported the idea so far, suggesting that the Twitter board introduce a DOGE payment option for Twitter Blue’s monthly social media subscription.