DICK’S Sporting Goods, Inc. (NYSE:DKS) shares are consolidating on Wednesday. They dropped by more than 30% yesterday after the company reported weaker-than-expected earnings. It also reduced its guidance.
But the shares may be close to a turning point. This is why DICK’s is the Stock of the Day.
Almost 39 million shares traded yesterday. That is more than 14 times the average daily volume of 2.76 million.
This could show that the sellers have capitulated. This could be a bullish dynamic.
Traders and investors who have been trying to sell DICK’s got tired of watching the shares head lower. Out of frustration, they threw in the towel and sold all of their shares. As a result, a huge amount of volume traded.
After the dust settles, some people may think the news was bad, but they also think the market overreacted. They decide to buy, but they will have a hard time finding sellers.
They will need to push the price higher to get new sellers back into the market. This action could form a new uptrend.
DICK’s is also very oversold. The red line on the chart is two standard deviations below the 20-day moving average. According to statistics and probability theory, 95% of trading should be within two standard deviations of the mean.
If a stock exceeds this threshold to the downside, as DICK’s has, it is considered to be oversold. Many trading strategies are based on the concept of reversion to the mean.
The oversold conditions can draw buyers into the market. They will be anticipating a reversion or move higher. Their buying could push the price up.
This combination of being oversold with a possible capitulation of the sellers could end up being a bullish dynamic. The selloff may soon end. The stock could even turn and rally.
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