Polkadot is targeting a breakout to $75 after DOT price rally initiated a classic bullish reversal

Polkadot (DOT) charting techniques suggest that if DOT manages to close decisively above its $41-$43 range, it could rally to a new record high near $75.

This corresponds to a classic bullish reversal setup known as an inverse head and shoulders (H&S), which forms when the price experiences three sell-offs during a period of market consolidation.

Specifically, the pattern contains an initial sell-off, followed by a short-term price rally and another – deeper – sell-off. This leads to another minor correction to the upside, followed by another sell-off, bottoming near/at the lowest level of the first sell-off.

Reverse illustration of the head and shoulders pattern. Source: ThinkMarkets

The first and last selloffs represent the “left” and “right” shoulders, respectively, while the second selloff represents the “head.” On the other hand, the level around which all short-lived rallies peak represents the “clip” of the head and shoulders pattern.

Traditional analysts typically calculate the H&S upside target from neckline resistance by measuring the maximum distance between it and the head formation.

Thus, it appears that Polkadot has formed a similar bullish pattern on its weekly chart, as shown below.

Weekly DOT/USD price chart with inverse head and shoulders setup. Source: TradingView

The maximum distance between DOT’s neckline and the back of the head is nearly $31. Therefore, on a successful bullish breakout above the $41-$43 neckline area, the next long-term target is around $75.

Parachain auctions are coming in November

The inverse H&S pattern emerged as DOT gained almost 30% over the past week to hit a five-month high of around $44. Its weekly uptrend focused on a price boom across the crypto market as well as the news that Polkadot’s first parachain auctions went live on November 11th.

In more detail, Polkadot’s parachains are parallelized, application-specific chains—child ledgers tied to a single parent ledger called a relay chain. Due to their parallel nature, parachains tend to process multiple transactions simultaneously and maintain and record their data in the ledger by communicating with other chains.

Related: Polkadot Launches Parachain Auctions After Government Vote

This is a departure from the method of queuing transactions and processing them sequentially.

5 years after the vision of a heterogeneous multichain framework was first outlined in the Polkadot whitepaper, parachains are now ready to be rolled out on Polkadot. Motion 118 to schedule the first auctions passed the council and has now gone to the public referendum.https://t.co/8pt3aT4vO3

— Polkadot (@Polkadot) October 13, 2021

DOT, which serves as a utility token for fees, governance, interoperability, and retention within the Polkadot ecosystem, surged more than 24% following the parachain auction announcement.

Next, Polkadot intends to introduce a cross-chain capability that will enable its relay chain via specialized smart contracts to external blockchains (Bitcoin, Ethereum, etc.). Meanwhile, the project also plans to introduce “built-in bridge modules” that will improve the interoperability of external blockchains with Polkadot.

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