Trading in MGM Resorts International (NYSE:MGM) is quiet on Friday. The stock fell about 11% yesterday after Barry Diller withdrew his proposal to buy shares and ended the planned acquisition.
The sell-off may present a buying opportunity. MGM is the Stock of the Day because it is oversold and at support. This could be a bullish dynamic.
• MGM Resorts International shares are retreating from recent levels. What’s weighing on MGM shares?
Traders pay attention when stocks become oversold. Oversold conditions are created by emotional and aggressive sellers.
They believe the shares are going to continue to drop lower and panic. They push them below what would be their typical or usual range.
This can be important. Reversion to the mean is a common theme in many trading strategies. Oversold conditions will draw buyers into the market.
They anticipate a reversion or move higher. Their buying could push the price up.
Moving Average Convergence Divergence (MACD) is a popular tool used by traders to determine if a stock is oversold. If the blue line is extremely low, like it is now, it indicates oversold conditions.
MGM is also close to a potential support level.
In March, support was $32.85. After the shares rallied, many people who sold at support regretted it. Some of them will try to repurchase their shares if they reach their selling price.
Their buy orders may create support.
In addition to these two potentially bullish dynamics, an extremely large amount of volume was traded yesterday. It could be a sign that the sellers capitulated.
This means if new buyers enter the market, they will have a hard time finding sellers. They will be forced to be aggressive and outbid each other if they want to draw sellers back in. This could force the shares into an uptrend.
The combination of being oversold and at support with a possible capitulation by the sellers could mean the stage is set for a reversal. MGM may be about to head higher.
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