Stellantis Surges 7.88% as Technical Indicators Signal Overbought Reversal Risk

Stellantis (STLA) surged 7.88% in the most recent session, extending its two-day rally to 11.35%. The price action suggests a short-term bullish bias, with recent highs and lows forming a potential breakout pattern. The following analysis evaluates key technical indicators to assess trend strength, momentum, and potential reversals.

Candlestick Theory

The recent two-day rally forms a strong bullish continuation pattern, with a long white candle closing near the upper shadow of the prior session. Key support levels are identified at $9.34 (prior trough) and $9.18 (September 30 low), while resistance aligns with the recent high of $10.51 and the 200-day moving average. A break above $10.51 could trigger a test of the next Fibonacci level at $10.85, whereas a pullback below $9.64 (October 1 high) may signal exhaustion.

Moving Average Theory

The 50-day MA (calculated at ~$9.90) currently sits above the 100-day MA (~$9.65), indicating a short-term bullish crossover. The 200-day MA (~$9.80) remains in play as a critical support level. Price action above the 50-day MA suggests a continuation of the upward trend, but the 200-day MA may act as a filter for sustainability. Divergence between the 50-day and 100-day MAs is narrowing, indicating alignment in the short-to-medium term.

MACD & KDJ Indicators

The MACD histogram shows a positive divergence, with the line crossing above the signal line, suggesting strengthening momentum. However, the KDJ oscillator (73.74) is nearing overbought territory (80), indicating caution for potential short-term reversals. A sustained close above $10.51 could push KDJ into overbought levels, increasing the likelihood of a pullback. The MACD’s positive trend aligns with the bullish candlestick pattern but may face challenges if KDJ triggers a sell signal.

Bollinger Bands

Volatility has expanded sharply, with the price approaching the upper band at $10.51. The 20-day BB width is at a 3-month high, reflecting heightened uncertainty. A retest of the lower band at $9.34 could confirm support, but a breakout above the upper band may require a follow-through move to sustain the rally. The current position near the upper band suggests a high-probability reversal zone in the near term.

Volume-Price Relationship

Trading volume surged to 32.6M shares on the most recent session, validating the price rally. However, volume on the prior session (20.3M) was also elevated, suggesting a potential exhaustion pattern. A decline in volume during the next up-move could signal weakening conviction. The on-balance volume (OBV) shows a positive trend but may need a divergence to confirm a shift in momentum.

Relative Strength Index (RSI)

The RSI (14) is currently at 68, approaching overbought territory. A close above 70 would confirm overbought conditions, though this is more of a warning than a reversal signal. The RSI’s alignment with the MACD and KDJ suggests a high-risk scenario for further gains, with a potential correction likely if the RSI peaks above 70.

Fibonacci Retracement

Key Fibonacci levels from the recent low ($9.18) to high ($10.51) include 23.6% at $9.68, 38.2% at $9.85, and 61.8% at $10.15. The current price near $10.4 is above the 61.8% retracement level, indicating a potential target for the next leg up. A breakdown below $9.68 would invalidate the bullish case and trigger a retest of the 38.2% level.

Backtest Hypothesis

The backtest strategy of buying STLA at MACD Golden Cross and holding until KDJ reaches overbought levels (80) from 2022 to 2025 yielded a -31.67% return, significantly underperforming the benchmark’s 7.95%. The strategy’s Sharpe ratio of -0.95 and 44.31% volatility highlight its poor risk-adjusted returns. Current technicals (MACD at 0.1, KDJ at 73.74) suggest the strategy is near a sell trigger but lacks historical reliability. Divergences between the MACD and KDJ, coupled with the RSI’s proximity to overbought levels, indicate a high-probability correction. Investors should consider alternative entry points or incorporate fundamental analysis to mitigate the strategy’s historical weaknesses.