Fiserv, Inc. (NASDAQ:FISV) is consolidating Wednesday. The shares gained almost 12.5% yesterday after the company reported earnings. The shares could reverse. They are overbought and at resistance. These can be bearish dynamics, which is why Fiserv is the Stock of the Day.
Momentum refers to have for a stock has moved in a given time period. Most of the time, the moves are not extreme.
But sometimes traders and investors who wish to buy become emotional and aggressive. They fear the shares will keep rising, so they buy regardless of the price.
This drives the price above the typical or normal range. When this happens, traders say the stock is overbought.
This can be an important dynamic. It will draw sellers into the market. They will be anticipating a reversion to the mean or reversal and their selling could push the price lower.
Traders can use many tools to determine whether a stock is overbought. Two are on the chart.
The red line on the chart is called a Bollinger Band. It is two standard deviations above 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 upside, as it has now, it is considered to be overbought.
Fiserv At Resistance Level
As you can see on the chart above, the $59 level was resistance in June. When a selloff followed, many people who bought shares at resistance felt buyer’s remorse.
Some decided to hold onto their losing positions, but they also decided to sell at breakeven it they could eventually do so. When the shares reached this level yesterday, they placed sell orders, and these orders created resistance.
Being overbought at resistance can be a bearish dynamic. The Fiserv rally may be over.
See More:
Top Value Stocks
Image: Shutterstock
