A recent price rally in the Polygon (MATIC) market pushed its prices above $1.56 for the first time in more than two months.
In detail, the MATIC/USDT exchange rate rose 20.65% in just two days to reclaim the June 17 high. Traders raised their bids for the pair after Polygon announced that it would create a decentralized autonomous organization (DAO) for its community members while focusing specifically on the booming decentralized finance (DeFi) space.
Polygon, which offers layer-2 scaling solutions to Ethereum projects, allocated $100 million for the DAO creation — and also to bring DeFi projects into its interoperability pool. The team also announced that it would airdrop new DAO governance tokens atop existing Polygon users, i.e., free tokens for people who hold MATIC.
The solid interim fundamentals pushed MATIC demand among speculators higher, leading to a price rally in the past two days. Meanwhile, the upside move also activated a classic bullish setup that promises to send MATIC prices to a new record high.
Breakout awaited
Dubbed as inverse head and shoulders, the pattern is a common bullish reversal indicator that one confirms after the price makes three troughs in a row below a resistance-like neckline. In doing so, the middle trough (head) appears to be deeper than the other two (shoulders), which are more or less of equal height when measured from the neckline.
Technical chartists typically enter a long position when the price moves above the neckline, with the pattern’s maximum height plus the breakout level serving as their ultimate profit target. Their stop loss is commonly at the low point of the right shoulder.
Applying the textbook definitions on the MATIC/USDT three-day chart shows the pair forming an inverse head and shoulder pattern.
On Aug. 20, the Polygon token inched above the neckline resistance of $1.51 following a 150% price rally measured from the June 18 low of $0.62 (head). Therefore, the maximum height of the inverse head and shoulders pattern came out to be $0.89.
Related: Terra Virtua moves to Polygon blockchain, citing environmental concerns
As a result, should the MATIC/USDT rate break above $1.51, accompanied by a spike in trading volume, the pair will increase its likelihood of rising by $0.89. In doing so, it would eye $2.40 as its inverse head and shoulders profit target, just $0.30 below its current record high.
Bearish setup
If Polygon bulls fail to reclaim $1.51 as support, its prices could retreat back to the next line of support near $1.35.
An additional breakdown would expose MATIC/USDT to $1.09, a reliable support level in recent history.
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