Stellar (XLM) is stagnating: Is the bullish flag pattern losing its validity?

Stellar (XLM) had an impressive July with a 71% increase. However, in the past 7 days, this coin has fallen nearly 12%, and the technical chart is showing less optimistic signals.

On the two-day chart, the price of XLM initially broke out of the bullish flag pattern – a continuation pattern that often signals the next upward trend. However, the subsequent candles mostly turned red. Without additional buying pressure, this breakout may be weakening.

Net cash flow: The only driving force is weakening

The net flow of funds on exchanges plays an important role in the recent increase of XLM. Earlier this month, the amount of coin withdrawn from the exchange exceeded the amount deposited, reducing the circulating supply and driving the price increase.

XLM price and net flow | Source: CoinglassIn the past week, this trend has clearly weakened, as the net flow gradually approaches neutral levels. The lack of ongoing coin withdrawal activity indicates that long-term holders are no longer generating new buying pressure, causing the breakout to lack necessary support.

Weak cash flow raises concerns

The trading volume data over the two-day timeframe further reinforces this weakening momentum. The On-Balance Volume (OBV) indicator – which tracks the accumulation of buying and selling pressure – is showing a downward trend, despite the fact that the price of XLM has broken out of the technical pattern. This indicates that large investors are not participating in buying strongly or decisively.

XLM and On Balance Volume data | Source: TradingViewSimilarly, the Chaikin Money Flow indicator (CMF) has also fallen sharply, from a peak of around 0.35 at the beginning of July to around 0.12 at the current time. CMF measures whether actual money is flowing into or out of an asset, and such a decline indicates that demand is weakening.

Chaikin Money Flow | Source: TradingViewBoth indicators suggest that the breakout in the upward trend may be lacking support in terms of cash flow to continue further.

XLM is still on the flag pattern, but the** invalid threshold is clear

Currently, the price of XLM is still holding above the breakout line of the bull flag pattern, trading around $0.41. However, the upward momentum is very fragile. If the price falls below $0.41, XLM will revert back inside the pattern. If it continues to break below the $0.35 mark, nearly half of the 133% increase that formed the "flagpole" earlier will be erased – thus rendering this breakout pattern ineffective.

XLM Price Analysis | Source: TradingViewFor the bulls to regain control, the price of XLM needs a decisive breakout back above the $0.47 mark, accompanied by stronger cash flow and improved trading volume. Without these factors, the recent breakout risks being just another failed attempt to reach new price highs.

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