Rocket Lab Surges 3.38% on Bullish Reversal Pattern as Overbought RSI Sparks Caution

Rocket Lab (RKLB) closed the most recent session with a 3.38% gain, pushing the price to $62.98. This upward movement suggests short-term buying momentum, but a deeper dive into technical indicators is required to assess the sustainability of the trend and identify potential reversal points. The following analysis synthesizes candlestick patterns, moving averages, momentum oscillators, and volatility metrics to evaluate the stock’s trajectory.

Candlestick Theory

Recent price action reveals a bullish reversal pattern on October 31, 2025, marked by a long-bodied candle with a high of $63.45 and a close near the upper shadow at $62.98. This “hanging man” formation, coupled with a preceding bearish candle on October 30 (closing at $60.92), suggests a potential short-term bottom. Key support levels are identified at $60.40 (October 31 low) and $56.16 (October 3, 2025), while resistance clusters at $65.18 (October 30 high) and $67.35 (October 20 high). The confluence of these levels with Fibonacci retracement lines (discussed later) reinforces their significance.

Moving Average Theory

Short-term momentum aligns with the 50-day and 100-day moving averages, which are currently above the 200-day MA, indicating a bullish bias. The 50-day MA at approximately $58.50 and the 100-day MA at ~$60.20 both suggest upward momentum, while the 200-day MA (~$53.00) provides a baseline for long-term trend confirmation. A potential golden cross—where the 50-day MA crosses above the 200-day MA—could occur if the stock maintains its current trajectory, though this remains probabilistic. Divergence between the 50-day and 100-day MA may signal decelerating momentum if the 50-day flattens.

MACD & KDJ Indicators

The MACD histogram has expanded into positive territory, with the MACD line crossing above the signal line on October 31, reinforcing bullish momentum. However, the KDJ stochastic oscillator (K at 82, D at 78) suggests the stock may be approaching overbought territory, raising the risk of a near-term correction. A bearish signal would materialize if the K line falls below the D line while prices remain above the 50-day MA. The RSI, currently at ~72 (calculated using the provided formula), corroborates overbought conditions, though divergence between price and RSI could signal a deeper trend continuation.

Bollinger Bands

Volatility has expanded recently, with the October 31 close at $62.98 nearly touching the upper Bollinger Band (set at ~$64.00 based on a 20-day SMA). This contraction-expansion pattern suggests heightened trading activity and potential for a breakout or breakdown. If the price remains above the middle band (~$60.00), the bullish trend may persist; a retest of the lower band (~$56.00) would signal a critical support test.

Volume-Price Relationship

Trading volume surged on the October 31 rally to 13.8 million shares, exceeding the 10-day average volume by 25%. This validates the strength of the bullish move. However, volume on the preceding bearish candle (October 30) was 12.5 million shares, indicating uneven conviction. A sustainable uptrend would require consistent volume expansion on up days and contraction on down days—a pattern not yet fully established in the data.

Relative Strength Index (RSI)

The RSI calculation over the past 14 days yields a value of ~72, confirming overbought conditions. While this does not guarantee a reversal, it signals caution for new long positions. A drop below 50 would indicate weakening momentum, whereas a sustained reading above 70 suggests the bullish trend remains intact. Historical divergences between RSI and price action (e.g., higher highs with lower RSI peaks) could foreshadow a reversal, but such signals are absent in the latest data.

Fibonacci Retracement

Applying Fibonacci levels to the recent downtrend from $72.18 (October 20) to $51.26 (October 3) identifies key retracement levels. The 61.8% level at ~$62.98 coincides with the October 31 close, suggesting strong support. A break below this level would target the 50% retracement at ~$61.72, while a sustained move above $65.18 (38.2% retracement) would validate the continuation of the uptrend.

Backtest Hypothesis

The backtesting strategy described in the provided text—buying Rocket Lab when RSI 14 drops below 30 (oversold) and holding for 5 days—was applied to the historical data. The analysis identified one valid entry point on December 30, 2022, when RSI reached 17.53. Exiting on January 4, 2023, yielded a 2.7% gain. However, the strategy’s effectiveness is limited by the sparsity of RSI data, with only one actionable signal in the dataset. Extending the backtest period or incorporating additional indicators (e.g., volume confirmation) could enhance reliability.