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The Chainlink (LINK) price is trading in a short-term bullish pattern but does show no reversal signs. A loss of the $6.40 area, which consists of three different support patterns could cause a sharp fall.

The LINK token is the native token of the Chainlink network, a decentralized oracle network that deals with smart contracts.

The Chainlink price has decreased inside a descending parallel channel since Dec. 1. These channels usually contain corrective movements. This means that an eventual breakout from it would be the most likely scenario.

Moreover, the LINK price bounced at the $6.40 support area on Dec. 12 (green icon). The $6.40 area is the 0.618 Fib retracement support level and a horizontal support area. At the time, the level also coincided with the channel’s support line.

However, the Chainlink price failed to break out after the bounce and has decreased over the past 24 hours. It is in the process of generating a bullish divergence (green line).

So, the $6.40 area is very suitable to initiate a bounce and cause a breakout from the channel.

However, since this is the final support area before the Nov. lows, a close below it would invalidate the possibility of a bullish breakout.

Chainlink Risks Falling To Long-Term Support Level

A look at the daily chart shows that the current upward movement was preceded by a bullish divergence (green line) in the daily RSI. On Nov. 21 (green icon), the Chainlink price confirmed the bullish divergence by bouncing and validating a long-term ascending support line.

Interestingly, the bullish divergence trendline nearly coincides with the support line of the previous short-term channel, since a price decrease below the channel’s support line would likely cause an RSI fall below the trendline.

Due to this confluence, it is possible to use the RSI trendline to gauge for whether the trend is bullish or bearish. A breakdown from the channel and trendline would indicate that the trend is bearish, while a breakout and validation of the line would indicate that the trend is bullish.

In case of a breakdown, the Chainlink price could fall to the long-term ascending support line at $5.60. In case of a breakout, it could move toward the 0.5-0.618 Fib retracement resistance area at $7.52-$8.

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