DeFi token AAVE eyes 40% rally in May but 'bull trap' risks remain
A sharp rebound move witnessed in the Aave (AAVE) market in the last three days has raised its potential to rise further in May, a technical indicator suggests.
Dubbed a "rising wedge," the pattern appears when the price rises inside a range defined by two ascending, contracting trendlines. It typically resolves after the price breaks below the lower trendline with convincingly rising volumes.
AAVE has been painting a similar ascending channel since early February 2022. The AAVE/USD pair has bounced in the past few days after testing the wedge's lower trendline as support. This means the bulls are now eyeing the pattern's upper trendline near $280, up over 40% from today's price.
The upside target also coincides with the level that has served as the resistance between November 2021 and January 2022. It was also instrumental in capping AAVE's downside attempts during July-October 2021.
As noted earlier, rising wedges are considered bearish reversal patterns by many traditional analysts. It indicates that AAVE's run-up to $280 might not transform into a full-fledged bull run. Instead, the likelihood of the token correcting lower appears higher.
Moreover, AAVE's price could also undergo an early pullback after hitting its 200-day exponential moving average (200-day EMA; the blue wave in the chart above) near $208, suggesting an imminent breakdown.
As a rule, a rising wedge breakout results in the price falling to a target that is measured after adding the distance between the patterns' upper and lower trendline to the breakout point.
Therefore, depending on the level at which AAVE breaks down from its rising wedge, the bearish scenario target becomes $105 and $124 by the end of Q2.
Switching to weekly timeframe charts shows AAVE in
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