Discerning traders keep a sharp eye on critical price levels and stock momentum, recognizing that oversold equities often find their footing at key support levels, leading to a potential uptick in performance.

Following a sharp decline, the shares of McKesson CorporationMCK have entered oversold territory and appear to have hit a price point that could serve as a strong support level. This compelling confluence of factors has prompted our team of trading experts to designate it as the Stock of the Day.

A notable indicator to consider is the red line shown in the chart below, known as a Bollinger Band, which currently sits two standard deviations below the 20-day moving average.

Based on statistical and probability analysis, around 95% of trading activity typically occurs within two standard deviations of the mean or average. When a stock breaches this threshold to the downside, it is deemed oversold, often attracting potential buyers back into the market.

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Traders anticipate a reversion to the mean or an upward movement, potentially driving the stock price higher. Notably, observing the chart over the past year reveals a pattern wherein every instance of McKesson dipping below the Bollinger Band has been followed by an upward surge.

Moreover, the stock is currently trading near a price level that could act as a significant support. The $472 mark served as resistance towards the end of the previous year, with previous resistance levels often transforming into support levels over time.

This market behavior is a frequent phenomenon in financial markets, driven by sellers who experience regret over selling at resistance points. These sellers, rueful of missing out on potential gains as prices surged upward, opt to repurchase their shares at the original selling price. Consequently, when the stock returns to this selling point, the influx of buy orders can create a support level at the erstwhile resistance point.

Oversold stocks finding support often exhibit a rally, indicating a plausible scenario for McKesson.

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Image created using artificial intelligence via Midjourney.