Stellar (XLM) Faces 50% Decline Risks After Mimicking XRP Price Boom

Stellar (XLM), a cryptocurrency with a common origin with Ripple Labs’ XRP (XRP), has surged by over 160% since Donald Trump’s reelection as the United States president. However, its strong bullish phase appears to be nearing an exhaustion point, which may lead to solid price declines in the coming weeks.

XLM Most Overbought Since February 2021

From a technical perspective, XLM has turned extremely overbought after its weekly relative strength index (RSI) reading reached 81, the highest since February 2021.

An RSI reading above 70 suggests that the market’s buying momentum is strong but overextended, meaning the underlying asset could undergo a bearish reversal or slow down in its price gains.

The bearish outlook strengthens further as XLM consolidates near its long-serving resistance level of around $0.241, aligning with the 0.238 Fibonacci retracement line.

A decisive pullback from this level could have XLM test the support area (the red bar in the chart above) of $0.144-0.162, down about 50% from the current price levels, by December 2024. Interestingly, this support range coincides with XLM’s prevailing ascending trendline support (the black line in the chart above).

Nonetheless, it is vital to mention that an overbought RSI does not immediately lead to a price correction. The crypto market’s animal spirits are back after Trump’s reelection, with most top coins rising despite their overbought statuses.

In 2021, XLM itself jumped 900% six months after its weekly RSI turned overbought. That said, a price jump above the $0.241 resistance level may invalidate the bearish outlook discussed above, instead setting XLM toward its next upside target at $0.346 by December 2024, aligning with the 0.382 Fib line.

XLM Fundamentals Are As Solid As XRP

Stellar’s XLM is one of the cryptocurrencies the US Securities and Exchange Commission (SEC) deems securities.

In June 2023, while filing a lawsuit against crypto exchange Coinbase, the SEC also identified Cardano (ADA), Solana (SOL), Polygon (MATIC) as securities.

Interestingly, these cryptocurrencies have emerged as the best gainers after Trump’s reelection, primarily because he promised to fire the SEC Chief Gary Gensler on the first day he took office and replace the top SEC brass with pro-crypto regulators.

As a result, traders may ignore overbought warnings and continue pushing XLM prices upward in the coming weeks. The rally, however, will likely be unstable and prone to immediate corrections, making it a too-risky bet primarily for leveraged traders.