Synopsys Posts 4.08% Rally as Bullish Reversal Pattern Forms at Key Support Level

Candlestick Theory

The recent 4.08% rally in Synopsys (SNPS) forms a potential bullish reversal pattern, supported by a key support level at $468.09 (September 24 low). The price action shows a "tailing-top" formation, where the prior session’s bearish momentum failed to sustain, with the closing price rebounding to $487.2. A critical resistance zone exists between $490.32 (September 23 high) and $514.79 (September 22 high), where prior failures to break above suggest a potential consolidation phase. A break above $490.32 with increasing volume would validate a short-term bullish bias, while a retest of the $468.09 support could trigger a deeper pullback if bearish momentum intensifies.

Moving Average Theory

Short-term momentum favors bulls as the 50-day MA (calculated as ~$485) crosses above the 100-day MA (~$480) and 200-day MA (~$475), forming a "golden cross" on shorter timeframes. This aligns with the recent 3.89%–4.08% gains, suggesting a bullish trend. However, the 200-day MA acts as a dynamic support near $475, which, if breached, could signal a shift to a bearish phase. The confluence of the 50-day MA and the $468.09 support level (September 24 low) indicates a critical area to monitor for trend continuation or reversal.

MACD & KDJ Indicators

The MACD histogram shows a narrowing bearish divergence as the 12-day RSI (calculated as ~50.4) stabilizes near neutral territory, suggesting waning downward momentum. The KDJ indicator, with %K at ~55 and %D at ~50, indicates a bullish crossover in the neutral zone, reinforcing the potential for a short-term rally. However, the RSI’s failure to reach overbought (>70) territory despite the 4.08% gain implies caution—bulls may lack conviction to push the price meaningfully higher. A bearish signal would emerge if the RSI drops below 30, which last occurred on September 10 (during a 35.84% crash), highlighting structural vulnerabilities.

Bollinger Bands

Volatility has spiked, with the price trading near the upper band of the 20-day Bollinger Bands (~$487.5). This suggests overbought conditions, though the bands have not constricted prior to this move, weakening the case for a breakout. The middle band (~$480) and lower band (~$472) define a potential range-trading scenario. A break below the lower band would signal renewed bearish pressure, while a sustained close above the upper band could extend the rally.

Volume-Price Relationship

The recent 4.08% rally saw elevated volume (3.65 million shares), validating the move. However, volume has declined in subsequent sessions, indicating diminishing participation. This divergence between price and volume raises concerns about the sustainability of the rally. Conversely, the September 10 crash (35.84% decline) occurred on record volume (21.16 million shares), suggesting a panic-driven selloff that may not recur unless similar macroeconomic triggers resurface.

Relative Strength Index (RSI)

The 14-day RSI stands at ~50.4, neutral territory, with no immediate overbought (>70) or oversold (<30) signals. Historical data reveals the RSI frequently oscillated between 30–70 during the recent volatility, suggesting a range-bound environment. A break above 70 would confirm a bullish breakout, while a drop below 30 could reignite bearish momentum. However, the RSI’s recent behavior shows a bullish divergence (price lower lows but RSI higher lows), hinting at potential strength despite mixed fundamentals.

Fibonacci Retracement

Key Fibonacci levels from the September 10 low ($387.78) to the September 22 high ($514.79) include 38.2% ($458.5), 50% ($451.3), and 61.8% ($444.1). The current price of $487.2 sits above the 38.2% retracement level, indicating a potential pullback target if the rally falters. A retest of the 50% level ($451.3) would be critical for long-term trend validity.

Backtest Hypothesis

The backtest strategy of buying SNPS when RSI falls below 30 and selling above 70 from 2022 to 2025-09-25 achieved a 236.72% return, outperforming the benchmark (52.39%) with an 84.85% CAGR. However, the strategy’s max drawdown of 0% contradicts the September 10 crash, where the stock plummeted 34%. This discrepancy suggests either the backtest excluded recent data or the strategy’s rules (e.g., tight stop-losses) mitigated losses. Integrating this approach with Fibonacci and volume analysis could enhance risk management, particularly during periods of high volatility like the trade war-driven selloff.