Yearn Finance risks pullback after YFI price gains 100% in less than 3 weeks

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Yearn Finance risks pullback after YFI price gains 100% in less than 3 weeks

Yearn Finance (YFI) looks poised for a price correction after rising five days in a row to approach $42,000. Notably, an absence of enough buying v

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Yearn Finance (YFI) looks poised for a price correction after rising five days in a row to approach $42,000. Notably, an absence of enough buying volume coupled with overbought risks is behind the bearish outlook.

The YFI price rally so far

YFI price surged by a little over 47% in five days to $41,970 as traders rotated capital out of “top-cap” cryptocurrencies like Bitcoin (BTC) and Ether (ETH) and looked for short-term opportunities in the altcoin market.

Yearn Finance was among the beneficiaries of the so-called capital migration, given its value against BTC and ETH rose almost 47% and 41.50% in just five days. Meanwhile, at the core of traders’ sudden buying interest in the YFI markets was a token buyback program.

YFI/ETH and YFI/BTC daily price performance after token buyback program announcement. Source: TradingView

On Dec. 16, the Yearn Finance team announced that they had purchased more than $7.5 million worth of YFI tokens from the open market at an average price of $26,651 per unit. They also revealed $45 million extra cash in their Treasury that they would use to continue their YFI buyback spree.

Additionally, the Yearn Finance community also proposed that the YFI treasury direct a portion of the token buyback to reward YFI holders who actively participate in Yearn Governance. The proposal (full details here) is currently in its voting phase.

YFI price surged by more than 100% against the U.S. dollar after the token buyback announcement.

YFI price correction risks

However, YFI trading volume fell despite the rall, suggesting the low conviction among traders in its upward movement.

YFI/USD daily price chart featuring price-volume divergence. Source: TradingView

Typically, a bearish divergence between price and volume leads to either correction or consolidation till conviction increases. As a result, the likelihood of YFI at least pausing its ongoing price rally is high, with its daily relative strength index (RSI) also entering its overbought zone above 70, a sell signal.

Related: YFI price gains 46% in just four days after Yearn Finance’s $7.5M buyback

Additionally, the Yearn Finance token’s latest price rally has brought it closer to a known inflection zone near $40,000, as shown via the Fibonacci retracement graph in the chart below.

YFI/USD three-day price chart featuring Fib entry and exit levels. Source: TradingView

In detail, the 0.618 Fib line near $40,113 has been limiting YFI’s upside attempts intraday. The same level was instrumental in stopping the Yearn Finance token’s price rally between October and November, which later led the YFI price to its 12-month low near $17,000.

Nonetheless, if the bulls manage to push the YFI price above the 0.618 line decisively, they may also take the token out of its multi-month range defined by circa $25,500 as support and $40,000 as resistance. In that scenario, YFI’s next upside target may move towards the 0.5 Fib line around $51,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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