LDO has recently witnessed a growing bearish divergence between its price and key momentum oscillator.
Lido DAO (LDO) price has skyrocketed by roughly 400% month-to-date to reach $2.22 on July 28, its highest level in over two months.
LDO Mergified
LDO price has benefited majorly due to its association with Ethereum, the leading smart contract platform by total-value-locked (TVL) and market capitalization.
Notably, LDO serves as a governance token inside the Lido DAO ecosystem, a project that offers staking services for Ethereum.
$ETH move bringing the entire ecoystem with it.
— Luke Martin (@VentureCoinist) July 27, 2022
Best movers:
•Defi: $LDO $UNI $BIT $AAVE
•Layer 2: $OP $MATIC
And of course because it's crypto $ETC is the biggest pump. pic.twitter.com/hN9Rd6Yr9j
The staking practice allows users to earn passive income without needing to sell their coins. It also helps validate transactions and secure the blockchain. In return, the protocol offers stakers rewards in the form of new tokens minted and fees collected.
Ethereum could become a full-fledged proof-of-stake blockchain by Sep. 19, the tentative date for "the Merge." A successful transition to proof-of-stake could mean more demand for Lido DAO services in the future.
Lido DAO has remained the leading Ethereum staking service provider since August 2021. As of July 28, it had had put 4.14 million ETH in the Merge's official deposit contract ETH 2.0 via its staking contracts.
That somewhat explains LDO's 140%-plus rally two weeks after the Merge's release date announcement — from $1.29 on July 14 to $2.22 on July 28.
False breakout risks
Despite solid fundamentals, LDO's ongoing rally risks trapping bulls, primarily due to a growing divergence between its price and momentum.
On a daily chart, LDO's price rise accompanies a drop in its relative strength index readings, suggesting that bulls may lose their grip on the market while letting bears take over.
Same clues emerge from the ongoing divergence between the rising LDO price and its falling volumes, as shown below.
Therefore, LDO market hints at an imminent correction, with its interim downside target at around $1.75, down 17% from today's price. This level coincides with the 0.382 Fib line of the Fibonacci retracement graph shown in the chart below.
On the other hand, LDO appears to have been breaking out of a "bull pennant," a bullish continuation pattern whose profit targets are measured after adding its preceding uptrend's height (flagpole) to the breakout point.
Related: Experts yet to explain massive spike in ETH active addresses
That puts Lido DAO en route to over $3 by September, which coincides with the 0.786 Fib line and potentially around the time of "the Merge" rollout. In other words, LDO could rally 45% from current price levels if the bull pennant pattern plays out.
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