Shares of Uber Technologies, Inc. (NYSE:UBER) are rebounding Wednesday. They have been trending lower over the past month, but things may be about to change. Oversold and at support can be bullish dynamics. This is why it is the Stock of the Day.
Support is a large group of buyers who are looking to pay the same price, or close to it, for shares.
If a stock is trending lower, it’s because there are more shares for sale than there are to be bought. Sellers are forced to undercut each other to draw in buyers. This forces the stock into a downtrend.
But the dynamics change when the shares drop to a support level. There are as many, if not more, shares to buy as there are to sell. Traders can sell as many shares as they need to without pushing the price lower.
Sometimes, stocks rally after they drop to support.
This happens when some of the buyers who created the support become impatient. They raise their bid prices and cut ahead of each other. This can result in a snowball effect that forces the price higher as other impatient buyers do the same.
In addition to being at support, Uber is also oversold. This means sellers have been emotional and aggressive and have pushed the shares below what would be their normal range.
This can draw in buyers who will be anticipating a reversion to the mean or move higher. Their buying could put upward pressure on the stock.
The red line on the chart below is two standard deviations below the 20-day moving average. Statistics and probability theory suggest that 95% of trading should be within two standard deviations of the mean. As you can see, the shares just crossed this threshold. This indicates oversold conditions.
Uber is at support and oversold. These can be bullish dynamics that suggest it may be about to move higher.
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