Solana (SOL) fell to a two-week low of $35.50 on July 26, indicating a downward move elsewhere in the crypto market. Nonetheless, technicals suggest that the price of Solana is flirting with the possibility of a 40% increase in August.
SOL hits major inflection point
Ironically, the bullish setup for Solana appears to have emerged from a classic bearish continuation pattern.
On the daily chart, SOL price is consolidating as a “bear flag”, a technical pattern that develops during a downtrend and resolves after exiting the instrument with further price declines.
The so-called Bear Flag breakdown hasn’t happened yet. Instead, the SOL is holding the lower trendline as support, increasing the chances of a sharp rebound towards the upper trendline, as shown in the chart below.
The rebound setup exposes the SOL for a potential August rally to $49.50, which is 40% higher than today’s price. The $49-$50 level acted as both support and resistance in May.
Solana network performance still a concern – researchers
A potential bear flag rebound will act as interim relief for the Solana bulls, given that the overall bias of the SOL remains skewed to the downside.
Macro forces such as the Fed’s fiery monetary policies and the collapse of the $40 billion “algorithmic stablecoin” project Terra have sent the crypto market into a tailspin. As a result, Solana, like any other risky asset, has suffered a decline in its financial and network usage metrics in 2022.
For example, according to data from Messari, the average number of daily transactions on the Solana blockchain fell by 17.6% in Q2/2022 compared to the previous quarter.
Meanwhile, Solana’s revenue dropped 44.4% quarter-on-quarter (also due to recurring network outages).
“As seen in 2021 and throughout Q1 and Q2, poor network performance undermines network utilization and undermines the continued flow of network revenues,” said James Trautman, a researcher at Messari.
“If Solana were to continue to experience the poor performance that physical quantities remain, the resulting pull on fundamental usage could catalyze volatility and pull on network value.”
Bear flag break?
A mix of macro and network concerns raises the risk of a breakout of the bear flag by September.
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As per the technical setup below, a decisive close of the SOL below the lower trendline of the flag means that there is a possibility of a further downside break in the $21-$23 area.
In other words, a drop of 35%-38% from current price levels.
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