October 2, 2022

Polkadot (DOT) looks poised to extend its ongoing price rally due to a classic bullish pattern forming on its daily chart.

DOT paints a “cup and handle” pattern.

In particular, DOT has formed a “cup and handle” pattern since mid-June, confirmed by its price falling and recovering to a rounded U-shaped trajectory (cup), followed by the development of a trading range on the right side (handle ).

Daily DOT/USD price chart including the “cup and handle” breakout setup. Source: TradingView

Cup and handle patterns are usually bullish continuation setups formed during an uptrend. But in rare cases, they appear at the end of a downtrend, leading to an upward reversal in price. As a result, the likelihood of DOT continuing its price recovery appears high.

So, technically, DOT is initially looking at a breakout above the cup and handle resistance line near $8.50.

A decisive close above the resistance line, that is, a breakout move accompanied by increased volume, could have the DOT eye around $12 by September as an upside target, over 50% from today’s price.

Set Polkadot Value Resolution

However, DOT’s path to $12 is in danger of being exhausted due to the presence of key technical resistance levels in the middle.

For example, the Polkadot token could reach its 100-day simple moving average (100-day SMA, the purple wave) near $9.50 only to retreat towards $8.50. This outlook draws evidence from the July 31 DOT price pullback from the same wave resistance (highlighted by a circle symbol below).

Daily DOT/USD price chart. Source: TradingView

Meanwhile, a fault under the curved cup support could invalidate the anode cup and completely manipulate the setup.

As a result, DOT could risk an extended price correction toward $6.25, which has been acting as support since June 13 against multiple declines. In other words, DOT could fall by almost 20% from today’s price by September at the latest.

Polkadot network metrics show stability

Along with the broader market, Polkadot saw its market capitalization plummet mainly due to macroeconomic turmoil. As of August 2, the project’s net valuation was $7.92 billion compared to a record high of $55.51 billion in November 2021.

In comparison, Polkadot’s network metrics are healthier. For example, it saw 145,000 monthly users in Q2 2022 versus 149,000 monthly users in Q1 2022, according to Messari’s DOT quarterly report in July.

Polkadot account and transfers. Source: Messari/Subscan

Similarly, DOT shipments were roughly flat during the quarter, averaging 293 million per month in the second quarter versus 288 million in the first quarter. Interestingly, the peak of account reads and transfers in November 2021 was due to initial parachain auctions.

The steady network activity highlights a steady organic demand for DOT tokens. Still, it remains well below its all-time highs, meaning Polkadot will have to do more to attract new projects for its parachain-backed network.

Initiation and administration of XCM

Nicholas Garcia, a researcher at Messari, says that Polkadot could gain greater adoption with the Cross-Consensus Message Format (XCM). This recently released tool allows parachains to broadcast messages to each other.

Related: Polkadot founder announces steps toward full decentralization with new governance model

“The development of new features and use cases will highlight the power of the network and can reignite user interest and activity,” Garcia noted, adding:

“Polkadot should continue to get on board parachains and connect them to XCM.”

Web3 Foundation, which oversees grants for Polkadot, approved 415 projects at the end of July, ranging from development tools and wallets to smart contracts and UI development. The move ensures further potential demand for DOT.

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.