Optimism [OP] faces a roadblock — Is a reversal likely?

Disclaimer: The information presented does not constitute financial, investment, trading, or other types of advice and is solely the writer’s opinion

• At press time, Optimism was on track to reverse last week’s losses. 
• The derivatives market was gradually shifting to bullish. 

Optimism [OP] is fixated on becoming the go-to Ethereum [ETH] Layer-2 scaling solution of choice. A recent report established the network outperformed Arbitrum [ARB] on transactions and costs. The native token, OP, reacted positively to the development and sought to reclaim last week’s losses.  

Is your portfolio green? Check out the OP Profit Calculator 

However, OP’s recovery was headed to a roadblock that could expose the token to elevated sell pressure and possible price reversal. 

Will sellers exploit the roadblock?

Source: OP/USDT on TradingView

Last week’s (14 – 20 August) extended bearish pressure pushed OP to crack the $1.379 support. But the drop eased at the weekly bullish order block (OB) of $1.17 – $1.34 (cyan), allowing the bulls to front a recovery. 

At the time of writing, price action appeared ready to clear the immediate resistance level at $1.50. However, bulls will face another hurdle and the weekly bearish OB of $1.55 – $1.77 (red) if they clear the $1.50 obstacle. 

Sellers could exploit the above resistance levels as Bitcoin [BTC] struggled to stay above $26k. If so, a price reversal could offer a shorting opportunity with an entry at $1.55 and a take-profit target of $1.40. 

An H12 candlestick session close above $1.61 will invalidate the short set-up. In such an upswing scenario, the retest of $1.70 could be feasible. 

The Chaikin Money Flow (CMF) was above zero, indicating massive capital inflows into OP’s market. But the Relative Strength Index (RSI) hadn’t decisively crossed above the 50-mark. An RSI rejection at the median level could signal sellers’ re-entry.

Short positions discouraged

Source: Coinglass

How much are 1,10,100 OPs worth today? 

According to Coinglass, more short positions ($264k) were liquidated than longs ($162k) approximately 12 hours before the time of writing. The trend captures a building bullish bias in the derivatives market. 

But the spread, about $100k, wasn’t too big to confirm further upside was likely. Nevertheless, on the derivatives side, Open Interest rates and volume increased by 10% and +40%. So tracking BTC movement was crucial.