Shares of Mondelez International, Inc. (NASDAQ:MDLZ) are trading flat Monday. But the stock has been in a steep decline.
There is a good chance the selloff is almost over. There is also a good chance that the stock reverses and moves higher. This is why it is our Stock of the Day.
Mondelez is very oversold.
Most of the time a stock stays within what would be its typical or usual trading range. Once aggressive sellers push the price below this range, traders say it is oversold.
This could draw buyers into the market. They will be anticipating a reversion to the mean, or a move higher. Their buying could push the price up.
Mondelez also recently had a day where a huge amount of volume traded. This could signal a capitulation and could also be a bullish dynamic.
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Capitulations occur when traders and investors ‘throw in the towel.' They get sick of watching the stock head lower. They wait for a reversal so they can sell their shares at higher prices but the reversal never comes.
As a result, they decide to sell all of their shares regardless of the price. This causes a large amount of volume to trade.
After this, if buyers enter the market, they will have a difficult time finding someone to buy shares from. They may be forced to bid premiums to draw the attention of sellers and this could force the stock into an uptrend.
As you can see on the chart below, Mondelez is also getting close to a price level that has been support in the past. In the market, there tends to be support at levels that were previously support because of ‘seller's remorse'.
There are people who sold at the support who regretted doing so when the price rallied soon after. Many traders decided to buy their shares back, assuming they could buy shares for the same price they were sold at.
So, if the stock eventually returns to the selling price, they will place buy orders. If there are enough of these orders, it will create support at the level that had been support before.
This combination of being oversold, close to support, and having a potential capitulation means there is a good chance the selloff in Mondelez soon ends. There is also a chance the stock will reverse and head higher.
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