Lyft, Inc. (NASDAQ:LYFT) continues to trade lower on Thursday. The stock dropped by more than 15% yesterday after reporting its earnings.
It is oversold now, and it is also at support. These can be bullish dynamics, which could set the stage for a move higher. This is why Lyft is the Stock of the Day.
* Lyft shares are retreating from recent levels. Why are LYFT shares down?
The bottom part of the chart is the Relative Strength Index (RSI). It is a popular tool used by traders to determine if a stock is overbought or oversold. If the blue line is below the lower red horizontal line, like it is now, it indicates oversold conditions.
This is important.
Many trading strategies and methods are based on the concept of reversion to the mean. If something moves too far in one direction, there is a good chance that it reverses and moves back the other way.
If a stock is oversold, like Lyft is, it could draw buyers into the market. They will be anticipating a reversion to the mean or a move higher. Their buying could push the price up.
There is also another dynamic that could be important for Lyft.
As you can see on the chart, it has dropped to a price level that has previously been support. In August, a downtrend ended around $13.30, and the stock reversed.
When this happened, some of the people who sold their shares while the stock was at support decided their decision to do so was a mistake. Many of them vowed to buy their shares back.
But they would only do so if they could get the shares for the same price they were sold. Now that Lyft has reached this support again, these remorseful traders are placing buy orders.
At least for now, that has put a floor under the price.
If some of these traders who now wish to buy become anxious and impatient, they could increase the prices they are willing to pay. If other anxious and impatient buyers do the same, it could force Lyft into a new uptrend.
Photo: Volodymyr Plysiuk via Shutterstock
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