Marvell Technology's 3.10% Surge Sparks Bullish Engulfing Pattern Amid Overbought Indicators and Caution

Candlestick Theory

The recent 3.10% price surge in Marvell Technology (MRVL) forms a bullish engulfing pattern, confirming a short-term reversal from prior bearish momentum. Key support levels are identified at $85.61 (October 10 low) and $83.81 (September 25 low), with resistance at $94.66 (October 10 high). The candlestick structure suggests a potential continuation of the uptrend if the price holds above the 50-day moving average ($87.45). However, a bearish divergence in the RSI and KDJ indicators (discussed below) introduces caution, as it may signal premature optimism.

Moving Average Theory

The 50-day moving average ($87.45) is above the 200-day line ($81.73), indicating a bullish medium-term bias. The 100-day MA ($85.05) has recently crossed above the 200-day line, reinforcing the uptrend. However, the 50-day MA is approaching a potential bearish crossover with the 100-day MA, which could signal weakening momentum if the price fails to consolidate above $88.92. The 20-day MA ($86.50) currently aligns with the 50-day MA, suggesting short-term buyers are active but may struggle to sustain the rally without a break above $90.89 (October 7 high).

MACD & KDJ Indicators

The MACD histogram has turned positive, reflecting strengthening bullish momentum, but the signal line (12-day EMA) is approaching the zero line, indicating a potential exhaustion phase. The KDJ stochastic oscillator shows an overbought condition (K=82, D=78), with a bearish divergence in the K-line (recent peak at 85 vs. lower highs in price). This divergence, combined with a narrowing MACD histogram, suggests a high probability of a near-term pullback to test the $85.61 support level.

Bollinger Bands

Volatility has expanded as the bands widened from a 3.5% range (October 3-10) to a 6.5% range (October 10-15). The price is currently near the upper band ($89.46), indicating overbought conditions. A break below the 20-day MA ($86.50) could trigger a contraction in volatility, with the bands likely narrowing to a 2-3% range. The middle band ($87.45) remains a critical psychological level, as a sustained close below it would validate a shift to a bearish bias.

Volume-Price Relationship

The recent 3.10% gain was accompanied by above-average volume (15.2 million shares), reinforcing the move’s validity. However, volume has declined in the last three sessions despite rising prices, suggesting weakening conviction among buyers. A break above $90.89 with a surge in volume would confirm the uptrend’s sustainability, while a failure to sustain above $88.92 with declining volume could signal a distribution phase.

Relative Strength Index (RSI)

The RSI has reached 68, nearing overbought territory, with a bearish divergence evident as the RSI peak on October 10 (72) occurred at a higher price ($85.61). This divergence, combined with the KDJ overbought condition, increases the likelihood of a correction to the 50-level (55-60), with support at $83.81 as a key target. Traders should remain cautious, as the RSI’s warning nature implies a high probability of a near-term reversal if the price fails to break above $90.89.

Fibonacci Retracement

Key Fibonacci levels derived from the October 10-15 rally ($85.61 to $88.89) include 38.2% at $87.10 and 61.8% at $88.30. A break above $88.92 would target the 78.6% level ($89.46), but a failure to hold the 50% retracement ($87.10) could trigger a retest of the 38.2% level. The 61.8% level ($88.30) aligns with the 50-day MA, making it a critical confluence point for trend continuation.

Backtest Hypothesis

The backtest of an RSI-based strategy (buying on RSI <30, selling on RSI>70) from 2022 to 2025 yielded a 30.52% return, underperforming the benchmark (40.78%) and exhibiting high volatility (74.30%). While the strategy captured a 27.7 RSI oversold signal in March 2025 (price: $74.73), the subsequent rebound to $88.89 by October 15 validates its potential for tactical entries. However, the strategy’s low Sharpe ratio (0.22) and maximum drawdown of 0% (likely due to favorable market conditions) highlight its risk profile. Integrating Fibonacci retracement levels and volume-confirmed breakouts could enhance risk-adjusted returns by filtering false signals during overbought phases.