Cosmos looks ready to make gains after a two-month correction. But first, one technical indicator suggests that ATOM prices will drop further, giving traders a chance to get back into the market.

Cosmos has gone through an impressive rally over the past three days. ATOM saw its price rise by nearly 27%, trading from a low of $4.6 on Oct. 8 to hit a high of $5.9. Now different metrics suggest the uptrend is approaching exhaustion.

The TD sequential indicator is currently presenting a sell signal on the 4-hour chart. The bearish formation developed as a green nine candlestick, forecasting a one to four 4-hour candlesticks correction.

A spike in selling pressure around the current price levels may help validate the TD index’s outlook. Cosmos could be forced to drop to $5.4 or lower before the uptrend continues. If this were to happen, the downswing would represent an opportunity for patient traders to get back into the market.

Indeed, ATOM appears to have developed a head-and-shoulders pattern within the same time frame. This technical formation estimates that a further increase in demand could lead to a full-blown trend reversal from bearish to bullish.

A move above the $5.9 resistance level, also known as the neckline, might signal a sharp upswing that will need to be confirmed by a large spike in buy orders.

The bullish pattern projects a 35.4% upward movement that may take ATOM to $8. This target is determined by measuring the distance between the head and the neckline and adding it to the breakout point.

Although Cosmos seems poised for a short-lived retracement, it could later break out of the head-and-shoulders pattern previously mentioned. Investors should pay close attention to the $5.9 resistance level since it will determine whether the upwards trend will resume.

On the flip side, it is worth mentioning that a move below the $4.6 support level will invalidate the bullish scenario.

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