The best traders often focus on key price levels and stock momentum. They understand that oversold stocks at support levels frequently experience a rally. McKesson Corporation (MCK) has recently fallen into this category, becoming oversold after a rapid decline. The stock has also reached a price level that may offer support, making it a potential candidate for a rebound. Our team of trading experts has identified McKesson as the ‘Stock of the Day’ due to these factors.
To illustrate this, consider the Bollinger Band, represented by the red line on the chart below. It’s positioned two standard deviations below the 20-day moving average. According to statistical theory, 95% of trading activity should occur within these two standard deviations of the mean or average. When a stock dips below this threshold, it’s considered oversold, potentially drawing buyers into the market. These buyers anticipate a reversion to the mean or a move higher. Their buying activity could push the price upwards.
The chart reveals a pattern: Over the past year, each time McKesson fell below the Bollinger Band, it was followed by a move higher. Furthermore, the stock is currently trading at a level that could act as support. The $472 level served as resistance at the end of last year. Price levels that previously acted as resistance often transform into support, a common occurrence in the financial markets.
This shift happens due to remorseful sellers. Some traders and investors sold while the shares were at resistance and regretted their decision when the price rose. To rectify this, many of these sellers seek to buy their shares back. They will only do so at the same price they initially sold, creating buy orders when the stock returns to their selling price. If enough of these buy orders accumulate, they form support at the price level that was previously resistance.
Stocks that are oversold and at support tend to rally. There’s a strong possibility that McKesson will follow this trend, making it an intriguing stock to watch for potential gains.
