3 reasons XLM could reverse soon

Stellar Lumens continued its strong comeback, rising for three consecutive weeks, reaching its highest level since 2021.

Stellar (XLM) price rose to $0.3052 due to the ongoing cryptocurrency bull run and fears of missing out.

Its rise coincided with the ongoing Ripple price rally, which saw Ripple jump to $1.5, its highest level since May 31. This rise is attributed to investors’ expectations that the Securities and Exchange Commission will terminate its case against Ripple Labs.

Ripple and Stellar have two important similarities. Both are designed to disrupt the payments industry. While Ripple aims to help institutions send money more easily globally, Stellar’s goal is to facilitate peer-to-peer payments.

Additionally, Gavin Wood, who founded Stellar, was a co-founder of Ripple. Historically, XLM and Ripple (XRP) have moved in sync with each other. Investors also predict that some companies will apply for the Stellar and XRP ETF in 2025.

Technicals point to Stellar Lumens inverse XLM chart | Source: crypto.news

The outlook for XLM price is bullish amid the ongoing crypto rally. However, there is a risk of a sharp reversal in the next few days.

First, the Stellar price may decline due to mean reversion, a concept where assets frequently return to their historical averages. In the case of XLM, the price rose 142% above the 50-week and 200-week Exponential Moving Averages during the rally.

Therefore, there is a risk that the coin will approach these averages if mean reversion occurs.

Secondly, XLM price may reverse sharply as it is overbought. The two lines of the Stochastic Oscillator are approaching 100 as the Relative Strength Index rises to 83. Rising oscillators indicate momentum, but such moves are often preceded by sharp declines.

Third, Stellar price may reverse to form a break-retest pattern. Last week, it broke above key resistance at $0.1624, the July 2023 high. In most cases, financial assets retest key support levels before resuming the uptrend. Therefore, XLM will likely drop to $0.1624 before resuming its upward move.