Shares of Amcor plc AMCR are little changed on Tuesday. This follows a significant decline that was triggered by a weak earnings report.
Some traders are anticipating a reversal and move higher. Amcor, currently oversold, is approaching a possible support level. These can each be bullish dynamics. This is why it is our Stock of the Day.
When traders and investors who are selling become emotional and anxious, they can push a stock below its typical or usual trading range. When this happens, the stock is said to be ‘oversold.’
This is important because it could create trading opportunities.
Many trading strategies and styles are based on the concept of reversion to the mean. If a stock becomes oversold, people will come into the market as buyers. They will be anticipating a reversion or move higher, and their buying could put upward pressure on the stock.
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To determine whether a stock is oversold, use Bollinger Bands.
The red line on the chart below is a Bollinger Band. It is two standard deviations below the 20-day moving average.
This is important because statistics and probability theory suggest that 95% of trading should be within two standard deviations of the mean. If a stock falls below this threshold, investors consider it oversold.
As you can see, that’s the case now. This should draw buyers into the market.
Amcor is also getting close to the $8.30 level. The last three times it fell to this price, a reversal and move higher followed.
Stocks rally off of support when the buyers who created the support become anxious and start to outbid each other. They are afraid that someone may be willing to pay a higher price than they are, and they know this is who the sellers will go to.
This bidding war can force the shares higher.
Amcor is close to support. This means there is a good chance it reverses and moves higher.
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