Solana (SOL) took a nosedive of 9.5% on Wednesday, dropping from $205 to $186. And guess what? It’s potentially forming a bearish engulfing pattern on the daily chart. A close below $190 would mark its most significant daily loss since March 3, when SOL plunged over 20%. But let’s not jump to conclusions just yet!
The futures market wasn’t much kinder. A cool $30 million in long positions were liquidated after SOL's open interest (OI) hit an eye-popping all-time high of $12 billion. Although SOL is still sitting 36% below its all-time high, the elevated OI suggests traders may be unwinding long positions and cashing in on some sweet profits.
On-Chain Indicators Point to a Potential Correction
On-chain indicators were also waving red flags. Net taker volume turned decidedly sell-heavy, signaling that more aggressive traders were taking the sell side. And if you look closely, the aggregated spot cumulative volume delta (CVD) started dropping, a signal that buyers were likely cashing out around the $200 level. Oh, and the aggregated futures CVD was steadily declining while prices were rising, a classic bearish divergence right before the drop. Not the best sign, huh?
And it gets juicier. Funding rates hit their highest point in the past quarter, which is like a flashing neon sign saying, "Hey, long trades are overcrowded!" Combine that with the elevated OI, and boom, you've got the perfect setup for a long squeeze. Over-leveraged traders had no choice but to bail under pressure.
Is This the Dip to Buy?
So, the million-dollar question: Is this the dip to buy?
Well, while the 9% drop might be worrying in the short term, it’s important to remember that SOL had just rocketed 56% in the last 30 days. A pullback after such aggressive upward movement isn’t unusual, and sometimes it’s just the market hitting the reset button. Technically speaking, the daily chart still looks pretty solid, with $180 emerging as the key support for a bullish continuation.
SOL made a big move earlier this week by reclaiming the $180 level, breaking through a bullish structure (BOS) and triggering a golden cross between the 50-day and 200-day EMAs. Last time that happened, SOL shot up over 730% between October 2023 and March 2024. Yep, you read that right: 730%. That’s some serious juice.
If SOL holds support around $180, bullish momentum could continue. But if it falls through, we could be looking at a deeper correction, potentially towards the $168–$157 zone. This range aligns with a daily fair value gap, an area of prior market imbalance, and the 0.5–0.618 Fibonacci retracement levels. In other words, it’s a high-probability technical retest zone.
So If Solana can hold onto the $180 support, we might just see another bullish rally. If not, it might be time for an intense ride down. The decision is yours!
Emmanuel Ekokotu
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