One of the early warnings comes from the derivatives market. Open interest, which measures the value of active futures contracts, often shows how much leverage is behind a movement.
When open interest is high, traders can push prices sharply in either direction, often triggering squeezes.
On July 18, Stellar's open interest reached $588.53 million while the price of XLM was rising. That increase in leverage helped propel the movement, with short squeezes adding momentum. Since then, open interest has fallen to $306.22 million, a decrease of almost 50%.
With fewer contracts in play, the possibility of another rally led by squeezes weakens, leaving the market more exposed to spot selling.
Momentum in spot has also tilted negative on smaller time frames, which often show early trend changes.
In the 12-hour Stellar price chart, the 20 EMA, or exponential moving average, crossed below the 50 EMA, a bearish signal indicating that sellers have taken short-term control.
In the 4-hour Stellar price chart, the 50 EMA is close to crossing below the 200 EMA. A similar crossover earlier this month preceded a drop. If confirmed, it would add another layer of selling pressure and strengthen the bearish bias.
The exponential moving average (EMA) is a moving average that gives more weight to recent prices, reacting more quickly than a simple average. A bearish crossover occurs when a shorter EMA/MA moves below a longer one, indicating that sellers have the momentum.
In the daily Stellar price chart, XLM is trading within a descending triangle, a bearish continuation pattern marked by lower highs pressing against flat support.
The price is at $0.42, just above key support at $0.38 and $0.36. If these levels fail, the lack of strong technical support points to a drop towards $0.23, a decline of almost 40% from current levels.
Stellar now faces pressure from three fronts: declining activity in derivatives, bearish crossovers on short- and medium-term charts, and a descending triangle that threatens a breakdown. Together, these scenarios highlight the risk of a 40% drop unless buyers can quickly reclaim higher ground.
For buyers, the invalidation level is clear. A close above $0.43 would break the triangle to the upside, cancelling the bearish scenario and opening space for recovery. Until then, sellers remain in control.
