Arista Networks (ANET) Surges 5.22% on Bullish Candlestick Signal, Overbought Indicators Signal Potential Pullback

Arista Networks (ANET) has experienced a 5.22% surge on the most recent session, extending its two-day rally to 7.16%. This momentum aligns with a bullish candlestick formation, suggesting potential continuation of the uptrend. Key support levels are identified at $121.63 (Dec 17 low) and $126.84 (Dec 5 low), while resistance sits at $127.16 (Dec 18 high) and $136.40 (Dec 11 high). The recent price action above these supports indicates a potential breakout, though caution is warranted near overbought territory.

Candlestick Theory
The two-day bullish engulfing pattern, with a strong close near the upper shadow, signals aggressive buying. However, a potential bearish reversal could emerge if the price fails to hold above $124.62 (Dec 18 close), triggering a retest of the $121.63 support.
Moving Average Theory
The 50-day MA (approx. $130.50) is above the 200-day MA (approx. $115.00), confirming an uptrend. The 100-day MA (~$128.00) acts as a dynamic support. A break above $132.13 (Dec 10 high) could see the 50-day MA act as a floor for further gains, while a close below the 100-day MA would signal weakening momentum.
MACD & KDJ Indicators
The MACD histogram is expanding above zero, reinforcing bullish momentum. The KDJ stochastic oscillator shows %K at 84, nearing overbought territory (%D at 78), suggesting a potential pullback. Divergence between price and KDJ could precede a reversal if the price fails to sustain above $131.12 (Dec 19 close).
Bollinger Bands
Volatility has spiked, with the price touching the upper band. The bands have widened significantly from a contraction in late December, signaling a breakout. A retest of the lower band (~$123.00) could occur if the RSI (currently ~72) triggers a correction.
Volume-Price Relationship
Trading volume has surged to $165M on the recent rally, validating the strength of the move. However, declining volume on follow-through rallies could signal exhaustion. The volume-to-price correlation remains robust, with higher volumes on up days reinforcing trend sustainability.
RSI
The RSI stands at ~72, indicating overbought conditions. While this may prompt a short-term correction, the RSI’s trajectory above 60 suggests the uptrend remains intact. A drop below 60 would signal a bearish shift, but a rebound above 70 would favor continuation.

Fibonacci Retracement
Key retracement levels from the $162.11 (Oct 29 high) to $85.52 (Apr 4 low) include 50% at $123.8 and 61.8% at $116.3. The current price (~$131.12) is above the 50% level, suggesting further gains could target $136.40 (Dec 11 high). A breakdown below $123.8 would trigger a test of the 61.8% level.
Confluence and Divergences
Strong alignment between bullish candlesticks, expanding Bollinger Bands, and the 50-day MA above the 200-day MA supports the uptrend. However, the overbought RSI and near-overbought KDJ signal caution. Divergence between price and MACD is absent, but a failure to hold above $124.62 could trigger a retest of $121.63.
In summary, Arista Networks exhibits a high-probability bullish setup with robust volume and trend alignment, but overbought indicators suggest a potential pullback. Traders should monitor $124.62 and $121.63 for support, with targets at $136.40 if the trend holds.