Humana Inc. (NYSE:HUM) is consolidating on Wednesday. But it may be about to reverse and rally.
It is oversold and getting close to a support level, and these are bullish dynamics that could set the stage for a move higher. This is why it is the Stock of the Day.
Many trading strategies and styles are based on the concept of reversion to the mean. If a stock gets overextended in one direction, there is a good chance it reverses and heads back in the other direction.
Most of the time, a stock stays within its typical or usual trading range. If the sellers get aggressive and emotional, pushing the price below this range, the stock is said to be oversold.
This will draw buyers into the market, who will expect a reversion to the mean or a move higher. Their buying could become a self-fulfilling prophecy.
There are many ways to determine if a stock is oversold. One popular indicator is called the stochastic, which is on the lower part of the chart.
If the red and blue lines are at the lower end of the range, it indicates oversold conditions. As you can see, that's the case now.
Humana is also getting close to a level that has been support previously. This could also be bullish.
Support levels can stay intact for a long time due to remorseful sellers. These are people who sold their shares while they were at support, who came to regret doing so after the price rallied.
Some vow to buy their shares back if they could eventually get them for the same price they were sold. So, when the stock drops back to the price that had been support, these regretful sellers place buy orders.
If there is a large number of these buy orders, it could create support at the level again. The combination of being oversold and at support could set the stage for a move higher for Humana.
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