Ericsson Surges 3.12% on Bullish Engulfing Pattern as Golden Cross and Fibonacci 50% Level Signal Breakout Potential

Candlestick Theory

The recent price action for LM Ericsson Telephone (ERIC) reveals a 3.12% surge on the most recent session, closing at ¥7.93. This upward movement aligns with a bullish engulfing pattern, where the candle’s body completely covers the previous session’s range, signaling strong buying momentum. Key support levels are evident at ¥7.62 (a prior consolidation zone) and ¥7.47 (a psychological floor), while resistance is clustered near ¥7.94 (recent peak) and ¥8.07 (a prior high). The price has oscillated within a ¥7.62–¥8.07 range over the past 60 days, with repeated tests of these levels suggesting potential for a breakout if the current bullish momentum sustains.

Moving Average Theory

The 50-day (approx. ¥7.75), 100-day (¥7.68), and 200-day (¥7.65) moving averages form a bullish alignment, with the 50-day crossing above the 200-day earlier in the year—a golden cross. The current closing price of ¥7.93 sits comfortably above all three, reinforcing an uptrend. However, the 50-day and 100-day lines are converging, indicating potential for a flattening trend if the 50-day pulls back toward the 100-day. A break below ¥7.68 may signal weakening momentum, while a sustained push above ¥8.07 could validate a broader trend continuation.

MACD & KDJ Indicators

The MACD histogram has shown a recent expansion, with the line crossing above the signal line (a golden cross), suggesting a short-term bullish bias. The KDJ oscillator (stochastic) indicates the %K line is approaching the %D line from below, hinting at potential exhaustion in the current rally. While the RSI is at 65 (neutral), the KDJ’s stochastic divergence—a bearish sign—suggests caution. The MACD’s strength contrasts with the KDJ’s caution, creating a mixed signal: the former supports continuation, while the latter warns of overbought conditions near ¥8.07.

Bollinger Bands

Volatility has expanded recently, with the upper band at ¥7.94 and the lower band at ¥7.62. The price’s proximity to the upper band suggests stretched momentum, increasing the likelihood of a retracement toward the mid-band (¥7.78). A break below the lower band would signal a shift in volatility and potential bearish momentum, while a sustained close above the upper band could validate a breakout. The narrowest band contraction occurred in early August, preceding the recent rally, indicating a potential consolidation phase prior to the move.

Volume-Price Relationship

Trading volume surged on the 3.12% rally to ¥7.93, with 10.43 million shares traded—well above the 7.01 million shares of the previous session. This volume confirms the strength of the upward move, as higher participation supports trend sustainability. However, the volume profile shows a recent divergence: while the price has risen to ¥7.93, volume has not consistently increased, suggesting potential weakening in buying pressure. A follow-through rally with expanding volume would reinforce the bullish case, whereas a lack of volume could indicate a false breakout.

Relative Strength Index (RSI)

The 14-period RSI stands at 65, indicating neither overbought nor oversold conditions. However, the RSI has shown a bullish divergence in recent weeks, with prices making higher lows while the RSI bottomed near 45 in late July. This suggests underlying strength despite moderate price consolidation. A push above 60 would confirm a return to positive momentum, while a drop below 50 could signal a bearish reversal.

Fibonacci Retracement

Applying Fibonacci levels to the major high (¥8.62 in late June) and low (¥7.17 in early August), key retracement levels include 23.6% at ¥7.89, 38.2% at ¥7.77, and 50% at ¥7.89. The current price near ¥7.93 is approaching the 50% level, which acts as a critical psychological threshold. A break above this level could target ¥8.07 (61.8% retracement), while a failure to hold it may result in a pullback toward ¥7.62 (38.2%).

Backtest Hypothesis

The backtest strategy of entering long positions on MACD golden crosses and holding for 10 days yielded a 32.35% return from 2022 to the present, though it underperformed the benchmark by 0.64%. This aligns with the current MACD golden cross observed in late July, which would have triggered a trade. However, the strategy’s maximum drawdown of 0% and Sharpe ratio of 0.37 suggest limited risk-adjusted returns. While the low volatility (22.03%) is appealing, the modest gains highlight the need for confluence with other indicators. For example, the recent bullish engulfing pattern and RSI divergence support the MACD signal, but the KDJ’s bearish stochastic and Bollinger Band saturation caution against overreliance on this approach. Integrating volume analysis (current weak divergence) could refine entry timing, balancing the strategy’s low risk with improved reward potential.