Best Buy Co., Inc. BBY shares fell again on Friday, following a significant drop of nearly 18% the previous day.

Despite this downturn, some traders anticipate a potential reversal, suggesting that the stock could recover if it maintains a crucial support level.

The current trading situation indicates that Best Buy is oversold, nearing a level of support. These market dynamics may pave the way for a rebound. This is why our trading team has chosen it as our Stock of the Day.

Typically, a stock operates within a defined trading range. However, if traders react emotionally and sell off shares aggressively, prices can fall below this range, leading to an oversold condition.

This oversold status captures the interest of additional traders and investors. Many might enter the market as buyers, anticipating a reversion to the mean or an upward move, which could, in turn, drive the stock price higher.

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To assess whether a stock is oversold, traders often analyze key indicators. The Relative Strength Index (RSI) charts the stock’s price momentum. If the blue line is beneath the horizontal red line, it signifies oversold conditions, which is currently the case.

Another common method uses Bollinger Bands. The red line in the price chart represents one of these bands, which is two standard deviations below the 20-day moving average price.

Statistical theory suggests that approximately 95% of trading occurs within two standard deviations of the mean. Thus, if a stock trades outside this range, it is likely oversold, which describes the present situation for Best Buy.

Additionally, Best Buy’s stock has reached a notable support level. Historical data indicates there was support around $59 in late 2023, a point the stock has revisited.

Support levels often reignite interest among traders. Those who previously sold at support might regret their decision if the price rebounds. Many of these traders may place buy orders now that the stock is back at $59, reinforcing this support level.

The intersecting factors of being oversold along with hitting a support level enhance the chances for a price reversal and subsequent increase.

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