Cryptocurrencies are surging in a bull rally led by Bitcoin (BTC) and Ethereum (ETH) this week. The cryptocurrency market surpassed $2 trillion in total capitalization for the first time in years.
In this context, some projects reached an overbought status at their Relative Strength Index (RSI). Therefore, it could encourage crypto investors to realize the massive gains currently achieved in this run.
If enough traders decide on profit realization, these overbought cryptocurrencies could suddenly experience a retracement or correction. According to Ralph Nelson Elliott, the market always moves in waves of impulses and corrections.
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Thus, identifying overextended price actions could help investors to front-run these corrections, working as a valuable sell signal. Finbold turned to CoinGlass‘ RSI heatmap on February 27, for an analysis.
Sell signal to an overbought Stacks (STX)
First, Stacks (STX) trades at $3.06 by press time, up 11.43% in the last 24 hours. Stacks is a second layer for receiving yield with Bitcoin and has strongly followed the leader in this rally.
This made STX reach the second-highest daily RSI among all cryptocurrencies at 78.78. Moreover, it has 90.63 in the weekly index, acting as a validating sell signal for the overbought Stacks.
The weakness observed in lower time frames could also fuel a short-term price correction. For example, STX has a 48.52 hourly RSI.
Coti (COTI) could face a correction
Second, Coti (COTI) is a lower market cap cryptocurrency with even higher overbought status. The governance token is trading at $0.24, already down 4.72% in the day.
Notably, COTI beats STX in both the daily and weekly time frames, with 79.92 and 91.21 RSIs, respectively. Price has started correcting, being a strong sell signal for cryptocurrency traders.
Nevertheless, it is worth noting how high the average daily RSI is at the time of publication. With 64.27 points, the Relative Strength Index suggests a positive momentum for cryptocurrencies, which could fuel continuation upwards despite the strong overbought sell signals.
Investors must trade cautiously and understand the market is volatile and unpredictable, driven by strong sentiments of FOMO and FUD.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
