Molson Coors Beverage Company (NYSE:TAP) is quiet on Wednesday. After a long downtrend, the shares have consolidated over the past few days and found support around the $48 level.
They are also very oversold and may be starting to reverse. This is why it is our Stock of the Day.
Stocks that are oversold and drop to support tend to rebound and rally. As you can see on the chart, this happened when Molson found support around the $52.50 level in January and early May.
Oversold refers to a stock's momentum. Most of the time, a stock is within its typical trading range. If aggressive and emotional sellers push the price below this range, traders will say the stock is oversold.
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This is an important dynamic.
It will draw buyers into the market. Many strategies are based on the concept of reversion to the mean, and these buyers will be anticipating a move higher. Their buying could put upward pressure on Molson.
The stock is also at a support level.
Support is a level or narrow price range with a large amount of buying interest. If a stock is trending lower, it is due to the lack of demand or a limited number of buyers. But at support levels, there is enough demand to absorb the supply.
This is why selloffs end or pause at support.
Molson has found support at around $48.30. This level was also support in August.
Some of the traders who sold their shares then came to believe they had made a mistake when the price headed higher. Some vowed to repurchase their shares at their selling prices if they could ever do so.
So, when the stock recently dropped back to this price, these remorseful sellers placed buy orders. The large concentration of these orders caused support to form at the level again.
This combination of being at a level where there is a large amount of buy interest in addition to being oversold could be a bullish setup. Molson may be about to rally.
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