LM Ericsson Shares Surge 20.56% on Bullish Technical Signals and Overbought RSI

LM Ericsson Telephone (ERIC) saw a dramatic 20.56% surge on the most recent session, closing at 9.85. This sharp move followed a prolonged consolidation phase, with price action suggesting potential confluence between momentum and trend indicators. Below is a technical analysis integrating candlestick patterns, moving averages, and oscillators to assess short-term and long-term implications.

Candlestick Theory

The recent 20.56% rally formed a bullish engulfing pattern, with the body of the candle swallowing the preceding bearish candle. Key support levels appear at 8.10–8.20, where the stock previously found buying interest during its decline in late September to early October. Resistance is now at 9.85, the recent high, but a breakdown of this level may trigger further consolidation or a retest of 8.10 as a psychological pivot.

Moving Average Theory

The 50-day moving average (calculated from the 12-month data) currently sits above the 200-day MA, indicating a bullish trend. The 200-day MA, which has been a dynamic support at 7.5–7.8, is now well below the current price, suggesting the uptrend remains intact. A crossover of the 50-day MA above the 100-day MA (approximately 8.4) would reinforce the bullish case, though a pullback to test the 200-day MA could act as a filter for sustainability.

MACD & KDJ Indicators

The MACD histogram has expanded positively, with the line above the signal line, confirming short-term momentum. The KDJ (Stochastic) oscillator is in overbought territory (K=85, D=78), aligning with the RSI’s overbought reading (>70). However, a divergence between price and KDJ (e.g., higher highs in price but lower highs in K) may signal a near-term correction. The MACD’s strength suggests the trend could persist, but caution is warranted if the RSI fails to retreat below 70.

Bollinger Bands

The recent 20.56% move caused the Bollinger Bands to expand significantly, with the price now at the upper band. This indicates heightened volatility and potential exhaustion of the rally. A pullback to the mid-band (around 9.0–9.1) could signal a continuation, while a breakdown below the lower band (8.5–8.6) might trigger a retest of key support levels.

Volume-Price Relationship

The surge was accompanied by a spike in volume (62.7 million shares), validating the move’s strength. However, declining volume on follow-through rallies could signal weakening conviction. The current volume profile suggests institutional buying, but retail participation may wane if the stock consolidates near 9.0–9.5.

Relative Strength Index (RSI)

The RSI is above 70, confirming overbought conditions. While this typically warns of a potential pullback, the RSI’s trajectory must be monitored for divergence. A failure to close below 70 on subsequent sessions would imply the uptrend remains robust, whereas a decline below 30 would indicate oversold conditions and a potential reversal.

Fibonacci Retracement

Applying Fibonacci levels to the recent low (8.10) and high (9.85) identifies key retracement thresholds:

- 61.8% at 8.80

- 50% at 9.00

- 38.2% at 9.20

A retest of 8.80 could trigger a bounce if the 50-day MA holds, but a breakdown below 8.50 (23.6% retracement) would invalidate the immediate bullish case.

Backtest Hypothesis

A backtest using the RSI-based strategy (buying at overbought levels and selling at oversold) would struggle with LM Ericsson’s recent volatility. The 20.56% surge created a single overbought signal, but historical data shows the RSI rarely exceeded 70 in the prior year. This suggests the strategy may generate false signals in low-volatility environments. A modified approach incorporating Bollinger Band breakouts and volume confirmation could improve efficacy, but the current overbought reading highlights the need for caution.