Arm Holdings Rises 8.97% as Overbought Indicators Defy Technical Signals Amid Earnings and AI Optimism

Arm Holdings (ARM) has experienced a four-day upward trend, with an 8.97% gain in the last four sessions, indicating strong bullish momentum. The most recent candlestick pattern shows a series of higher highs and higher lows, suggesting a potential continuation of the uptrend. Key support levels appear to form at $138.49 and $135.35, while resistance is likely to emerge around $146.54 and $161.75. The recent price action near $152.145 suggests a test of the upper Bollinger Band, which could precede a consolidation phase or a breakout.

Moving Average Theory

The 50-day moving average (approximately $145.50) is positioned above the 100-day ($140.00) and 200-day ($137.00) averages, confirming a short-term bullish bias. The price remains above the 200-day MA, reinforcing the long-term uptrend. Convergence between the 50-day and 100-day MAs may signal a narrowing of momentum, but the 200-day MA remains a critical support level. A break below $145.50 could trigger a reevaluation of the trend.

MACD & KDJ Indicators

The MACD histogram has expanded positively, reflecting accelerating momentum, while the KDJ oscillator shows K at 90 and D at 80, indicating overbought conditions. However, the KDJ’s overbought reading aligns with the RSI (85.3) and Bollinger Band contraction, suggesting the trend may persist despite short-term exhaustion. A divergence between the KDJ and price action—such as a lower high in K while the price continues to rise—could foreshadow a reversal.

Bollinger Bands

The bands have widened significantly in recent weeks, reflecting heightened volatility. The price’s proximity to the upper band ($152.145) suggests overbought conditions, but the absence of a reversal in the MACD or RSI implies the uptrend remains intact. A pullback to the mid-band ($145.50) could test the 50-day MA for validation of the trend’s strength.

Volume-Price Relationship

Trading volume has surged during the recent rally, particularly on days exceeding 10 million shares, such as the 2025-09-10 session. This volume validates the price increase, suggesting strong institutional participation. However, declining volume during recent gains (e.g., 3.57 million shares on 2025-10-02) may hint at weakening momentum, though the overall volume profile remains supportive of the trend.

Relative Strength Index (RSI)

The RSI (85.3) is in overbought territory, typically a cautionary signal. However, in a strong uptrend, the RSI can remain elevated for extended periods. A sustained close below 50 would confirm a shift in sentiment, while a divergence between RSI and price action (e.g., RSI peaking before the price) could signal a near-term correction.

Fibonacci Retracement

Key retracement levels at 38.2% ($145.50) and 50% ($143.00) align with the 50-day and 100-day MAs, respectively. A breakdown below 61.8% ($138.00) would invalidate the current uptrend and target the 200-day MA ($137.00) as the next support.

Backtest Hypothesis

A backtest of a strategy selling ARM when the KDJ oscillator reaches overbought levels (K=90, D=80) and exiting at the next day’s open from 2022 to 2025 reveals underperformance. The strategy returned 4.17% compared to the benchmark’s 39.69%, with a Sharpe Ratio of 0.09 and no drawdowns. This outcome likely stems from the stock’s strong fundamental momentum—such as earnings surprises and AI-related optimism—overriding technical signals. The KDJ’s overbought readings often coincided with earnings-driven rallies, making the strategy’s short-term exit premature. Integrating Fibonacci levels and volume validation could improve efficacy, as the current confluence of overbought indicators and robust volume suggests the trend is likely to continue.