HPQ Surges 4.57% on Bullish Engulfing and Golden Cross, But Overbought RSI Flags 4.96% Rally

HP (HPQ) Technical Analysis

HP’s stock surged 4.57% in the most recent session, extending its two-day winning streak with a total gain of 4.96%. This sharp rally suggests strong near-term bullish momentum, but further analysis is needed to assess sustainability and potential reversals.

Candlestick Theory

Recent price action reveals a bullish engulfing pattern on August 28, where the candle’s body fully covers the prior session’s bearish candle, signaling a potential reversal. Key support levels include $26.895 (August 27 low) and $25.35 (July 31 low), while resistance is at $28.92 (August 28 high). The 50% Fibonacci retracement level of the recent $25.35–$28.92 move is $27.14, which has acted as a dynamic support/resistance zone.

Moving Average Theory

Short-term momentum is confirmed by the 50-day MA (currently around $27.50) crossing above the 100-day MA ($27.00), forming a “golden cross.” The 200-day MA at $26.50 provides a critical long-term support. Prices trading above all three MAs indicate an uptrend, but the 50-day MA’s proximity to the 100-day MA suggests caution about potential convergence-driven volatility.

MACD & KDJ Indicators

The MACD line (12-day EMA minus 26-day EMA) stands at +0.45, above the signal line (+0.20), with a narrowing histogram, hinting at a potential slowdown in momentum. The KDJ oscillator shows K at 82 and D at 78, indicating overbought conditions. A bearish divergence between K and price action (e.g., higher highs in K but lower highs in price) could foreshadow a pullback.

Bollinger Bands

Volatility has expanded, with the upper band at $29.50 and lower band at $26.50. The current price of $28.35 is near the upper band, suggesting overbought conditions and a possible retest of the lower band. Band contraction observed on August 25–26 ($27.44–$27.52 range) preceded the recent breakout, validating the move’s strength.

Volume-Price Relationship

Trading volume spiked on August 28 (20.14M shares) and August 22 (6.57M shares), aligning with price gains. However, volume on August 27 (11.71M shares) was lower despite a 0.37% rise, signaling weakening conviction. This divergence may caution against overreliance on the current rally.

Relative Strength Index (RSI)

The 14-day RSI is at 68, approaching overbought territory (70). While not yet extreme, the RSI’s recent acceleration (from 52 on August 25 to 68 on August 28) suggests a potential correction. A close below 50 would indicate a shift in momentum.

Fibonacci Retracement

Key retracement levels from the $25.35–$28.92 range include 38.2% at $27.74 (current price is near 61.8% at $27.14). A break above $28.92 could target the 161.8% extension at $30.50, but a failure to hold $27.14 may trigger a retest of $25.35.

Backtest Hypothesis

A backtest strategy could leverage the confluence of the 50-day MA crossover, RSI above 60, and bullish engulfing patterns. For example, entries could be triggered when the 50-day MA crosses above the 200-day MA (as seen here) and RSI confirms momentum. Exit signals might include RSI overbought levels or KDJ divergence. Historical data from August 22–28 show that such a strategy would have captured the 4.96% rally but would require strict stop-loss placement near $26.895 to mitigate risks.