Rocket Companies Shares Drop 9.14% as Bearish Death Cross and MACD Confirm Downtrend

Candlestick Theory

Rocket Companies (RKT) has exhibited a bearish bias in recent candlestick patterns, with a 3.10% decline on the most recent session and a 9.14% drop over two days. Key support levels are forming around $17.63–$17.80, where price has previously found temporary stability. Resistance is clustered at $18.82–$19.59, areas where upward momentum has repeatedly stalled. A bearish engulfing pattern on October 2 (a large red candle following a smaller green one) suggests continued selling pressure. However, a potential short-term reversal could be signaled if price closes above the 200-day moving average ($19.50) with a bullish engulfing or hammer pattern, though such a move would require a significant shift in sentiment.

Moving Average Theory

Short-term (50-day) and long-term (200-day) moving averages confirm a bearish trend, with the 50-day MA at $18.70 below the 200-day MA at $19.50, forming a "death cross." The 100-day MA at $19.30 further reinforces this. Price remains below all three averages, indicating a sustained downtrend. A potential reversal signal would require the 50-day MA to cross above the 200-day MA, but this is unlikely without a sharp rebound. The 100-day MA may act as a dynamic resistance if price approaches it, while the 200-day MA could serve as a critical psychological hurdle for buyers.

MACD & KDJ Indicators

The MACD line has crossed below the signal line in recent weeks, confirming bearish momentum. A histogram contraction suggests waning downward momentum, but the negative divergence between price and MACD (price making higher lows while MACD makes lower lows) hints at potential exhaustion in the downtrend. The KDJ indicator (stochastic oscillator) shows oversold conditions, with the K line at 25 and D line at 30, suggesting a possible near-term bounce. However, the J line (-5) indicates caution, as oversold readings can persist during strong downtrends. A bullish crossover in KDJ may align with a MACD histogram expansion to signal a short-term reversal, but this would require a break above the 50-day MA to validate.

Bollinger Bands

Volatility has expanded recently, with Bollinger Bands widening as price approaches the lower band ($17.63). This "squeeze" pattern suggests a potential breakout or breakdown is imminent. The 20-period standard deviation is at 0.65, above historical averages, indicating heightened uncertainty. If price breaks below the lower band, it could trigger a continuation of the downtrend toward $16.50–$17.00. Conversely, a break above the upper band ($19.59) would signal a reversal, though this is less probable without a catalyst such as a positive earnings report or sector-wide rally.

Volume-Price Relationship

Trading volume has surged during recent declines, validating the bearish trend. On October 2, volume reached 91 million shares, the highest in the dataset, coinciding with a 6.23% drop. This "confirmation" of selling pressure suggests the downtrend is structurally supported. However, volume has begun to taper off in the past two sessions, which may indicate near-term exhaustion. A surge in volume during a rebound could signal a short-covering rally, but without a clear breakout above key resistance levels, such a move is likely to remain corrective rather than trend-changing.

Relative Strength Index (RSI)

RSI has entered oversold territory (28) following the recent two-day drop, but this is not an immediate buy signal. Oversold conditions can persist in strong downtrends, as seen in late 2024 when RSI lingered below 30 for extended periods. A potential reversal would require RSI to cross above 30 with a closing price above the 50-day MA. Divergence between RSI and price (e.g., RSI making higher lows while price makes lower lows) could precede a bounce, but this would need to be confirmed by a bullish MACD crossover or a break above the 200-day MA.

Fibonacci Retracement

Key Fibonacci levels are established between the May 2025 high ($21.40) and October 2025 low ($17.63). The 38.2% retracement level at $19.30 and 61.8% at $18.60 are critical. Price has tested $18.60 twice, with mixed results, suggesting this level could act as a temporary floor. A break below $18.60 would target the 78.6% level at $17.90, aligning with recent support. A sustained close above $19.30 would invalidate the bearish case, but this would require a coordinated sector rally or earnings-driven optimism.

Backtest Hypothesis

A backtest of a strategy based on RSI overbought (RSI >70) and oversold (RSI <30) signals from 2022 to 2025 reveals underperformance relative to the benchmark. The strategy returned 43.04% versus the benchmark’s 51.37%, with a negative excess return of -8.32%. While the strategy exhibited zero drawdown (suggesting limited downside risk), its CAGR of 10.53% trailed the benchmark’s implied CAGR of ~12.34%. This underperformance highlights RKT’s susceptibility to macroeconomic factors (e.g., interest rates, housing market trends) and institutional sentiment, as noted by ValueAct’s stake reduction in 2022. Combining RSI with volume analysis or MACD could improve the strategy, but the standalone RSI approach appears insufficient for capturing RKT’s complex price dynamics.