Oversold Condition - Below Support
Technical analysts have traditionally performed a visual review of stock price charts to determine levels at which the market price showed significant reversals to form a noteworthy high or low point in the price action.
If reversals points were lower than the current market price, they were called support, and if they were above the current market, they were termed resistance. Approaching a support level tends to result in buying activity in the market, while nearing resistance levels tends to induce selling activity in a stock.
Furthermore, when selling interest overcomes buying interest at a support level and the market then breaks below that support level, heavy selling pressure can result due to sell stop orders being triggered. In this situation, the stock’s price can quickly enter an oversold condition according to key momentum indicators, signaling that a bounce in the stock’s price is likely to occur.
Technical swing traders often use that oversold condition after breaking support as a short term bullish signal for them to consider establishing a long position in the stock or buying back an existing short position. If they do decide to go long the stock, they will also often place their take profit sell orders below the broken support level, since that level has now become a resistance level that can inhibit the market from moving higher.
In addition, traders might look for confirmation in the form of buying activity materializing as the market becomes oversold. They might also watch closely for bullish regular divergence on key momentum indicators, such as the Relative Strength Index or RSI, which is seen when fresh lows in the price are not confirmed by fresh lows in the indicator.
Below is a list of stocks that have broken support and become oversold. The results of these algorithmic scans of the stock market show which stocks could offer a swing trader a short term buying opportunity in anticipation of a bounce.
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