AAVE's Short Squeeze Set to Lose Steam as Momentum Fades

AAVE's recent price surge of 17% in a single session has left many wondering if this is a sustainable trend or just a short squeeze. With its price now trading above $125, it seems that AAVE has broken out above resistance and left the entire moving average stack in the dust.

The DeFi narrative has been quietly rebuilding all summer, with Aave, as the dominant decentralized lending protocol by TVL, tending to lag Bitcoin and ETH breakouts before overcorrecting violently when it catches up. This pattern is exactly what played out today, with the funding rate sitting at a dead-neutral 0.01% indicating that this move was not driven by overleveraged futures longs piling in.

While momentum has gone vertical and is already sputtering, AAVE's RSI at 81 is not just overbought but also in territory where price needs to consolidate or pull back before the next leg. The MACD histogram printing exactly at zero further signals that buying velocity is neutralizing in real-time.

The positioning data reveals that both retail and top-trader long/short ratios are nearly identical, hovering around 59.5-59.7% long. This means there's no divergence between dumb money and smart money here, as both camps believe in the directional trade.