Virgin Galactic Forms Reversal Signal As The Stock Reaches Oversold Territory

Zinger Key Points
  • Virgin Galactic is trading in a steep downtrend, making lower highs and lower lows.
  • A bounce may be on the horizon because the stock's RSI level has reached oversold.

Virgin Galactic Holdings, Inc SPCE rocketed over 10% higher at one point on Thursday before falling to near flat. The stock also reached a new all-time low on Thursday, despite announcing four successful spaceflights over the last four months.

The jump higher within the stock’s downtrend is likely due to Virgin Galactic trading in oversold territory and being in need of at least a lower high. Virgin Galactic’s relative strength index (RSI) is measuring in at about 22%, which indicates the stock is oversold.

RSI is an indicator technical traders use to measure bullish and bearish price momentum. RSI levels can range between zero and 100, with levels between 30 and 70 generally considered to be healthy.

When a stock’s RSI falls below the 30% level, it's considered to be oversold. When a stock enters oversold territory, it indicates the securities price no longer reflects the asset's true value, which can signal a reversal to the upside is in the cards.

When a stock’s RSI rises above the 70% area, it is considered to be overbought. When a stock enters overbought territory, it signals the securities price is elevated to its intrinsic value, which can signal a reversal to the downside is on the horizon.

RSI is best used when combined with other signals and patterns on a stock chart because stocks can remain in oversold and overbought territory for an extended period of time before reversing.

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The Virgin Galactic Chart: Virgin Galactic’s most recent downtrend started on June 21, when the stock topped out at $6.17. Since then, Virgin Galactic has plunged almost 70% within a steep downtrend.

  • Virgin Galactic’s most recent lower high was formed on Aug. 29 at $2.76 and the most recent confirmed lower was printed at the $2.46 mark on Aug. 25. If Virgin Galactic continues to slide on Friday, Thursday’s high-of-day will serve as the next lower high within the downtrend.
  • A bounce could be in the cards for Friday, however, because the stock was working to print an inverted hammer candlestick on the daily chart. An inverted hammer candlestick, when found at a low within a downtrend, can signal a rise is on the horizon.
  • Bullish traders want to see the stock break up above the eight-day exponential moving average (EMA), which was been guiding Virgin Galactic lower since Aug. 3. Bearish traders want to see the stock break to another new all-time low on higher-than-average volume.
  • Virgin Galactic has resistance above at $2.46 and at $3.10 and support below at $1.86 and at the psychologically important $1.50 mark.

Photo via Shutterstock. 

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