Alcon’s Bullish Reversal Pattern and Overbought RSI Signal Key Support at $80.83, Resistance at $84.18 After 3.59% Gains

Candlestick Theory

Alcon’s (ALC) recent price action reveals key support and resistance dynamics. A strong bullish reversal pattern, the bullish engulfing, formed on August 22 as the candle closed at $82.02, surpassing the previous day’s bearish candle. This suggests a potential short-term support level near $80.83 (August 22 low) and resistance at $84.18 (August 20 high). The price has tested the $80.83 support twice, with the most recent close above it indicating temporary strength. However, the August 19 high of $90.12 remains a critical psychological barrier. A break above $84.18 could target $88.13 (August 18 high), while a retest of $80.83 may trigger further consolidation.

Moving Average Theory

Short-term momentum appears constructive, with the 50-day moving average (approx. $84.30) currently above the 100-day ($86.20) and 200-day ($88.50) averages. This "Golden Cross" scenario between the 50-day and 100-day MAs implies intermediate-term strength, though the 200-day MA remains a critical hurdle. The current price ($82.02) is below both the 50-day and 100-day averages, suggesting a potential pullback to align with the 50-day MA before resuming an upward bias. A sustained close above $86.20 could signal a broader trend reversal, while a drop below $84.30 might rekindle bearish momentum.

MACD & KDJ Indicators

The MACD histogram has shown a recent divergence: while the price surged 3.59% on August 22, the MACD line failed to confirm this strength, hinting at potential exhaustion. The KDJ oscillator (K: 82.3, D: 78.5) indicates overbought conditions, with the J-line ($88.13) approaching saturation. This confluence of overbought momentum indicators raises the probability of a short-term correction. However, the MACD’s slow line crossing above the signal line on August 22 suggests a mixed signal—bullish for trend continuation but bearish for immediate reversals.

Bollinger Bands

Volatility has expanded, with the bands widening from a 1.2% range to 3.5% over the past two weeks. The current price ($82.02) sits near the lower band, indicating oversold territory relative to the 20-day volatility. A retest of the upper band at $84.40 (August 13 high) could trigger a mean reversion trade, while a sustained break above $84.40 might signal a shift in volatility dynamics. The 20-day ATR of $1.85 reinforces the need for a 1.5% stop-loss to manage risk.

Volume-Price Relationship

Trading volume spiked to 3.3 million on August 22, a 12-month high, supporting the price’s 3.59% gain. However, the volume-to-price ratio (V/P) has declined from 0.32 to 0.29, suggesting weakening conviction. A follow-through rally would require volume to exceed 3.5 million on subsequent up days. Conversely, declining volume on further gains (e.g., below 2.5 million) may confirm a topping pattern.

Relative Strength Index (RSI)

The RSI stands at 69.4, hovering near overbought territory. A close above 70 would validate the current bullish momentum, but this must be viewed cautiously given the recent 5.5% rally. A bearish divergence emerged on August 20, where the price hit a 12-month high ($90.12) but the RSI failed to surpass its prior peak, suggesting a potential reversal. A drop below 55 would signal a shift to oversold conditions, targeting support at $80.83.

Fibonacci Retracement

Key Fibonacci levels from the $78.11 (August 21 low) to $90.12 (August 19 high) include 23.6% at $84.50, 38.2% at $83.50, and 50% at $84.12. The current price ($82.02) is below the 50% level, indicating a potential consolidation phase. A break above $84.50 could target $88.13 (August 18 high), aligning with the 61.8% retracement at $85.30.

Backtest Hypothesis

The backtest of a MACD Golden Cross strategy (buying on a 12/26/9 crossover and holding for 5 days) yielded a 16.43% return over the test period, though it underperformed the benchmark by 24.29%. While the strategy exhibited no drawdown (likely due to limited sample size), its Sharpe ratio of 0.36 underscores low risk-adjusted returns. Integrating this with the technical analysis, the strategy’s underperformance aligns with the observed overbought RSI and diverging MACD, suggesting the strategy may struggle in overextended markets. A refinement incorporating Fibonacci levels (e.g., entering near 38.2% retracement) or volume-volume divergence could improve robustness.