Stock Of The Day: Has The AES Rally Started?

Trading in the AES Corp AES is quiet on Tuesday. This comes after last week's sell-off of more than 20%. But a reversal may have started on Friday. There is a good chance the selling ended.

The stock is oversold at support and it formed a bullish engulfing pattern on the chart. These dynamics may result in a rally. This is why we have made it our Stock of the Day.

Oversold means there has been aggressive and emotional selling. The stock has been pushed below what would be its typical or usual trading range.

This will draw buyers into the market. Many trading strategies and styles are built on the concept of reversion to the mean. These buyers will be anticipating a reversal or move higher. Their buying may become a self-fulfilling prophecy and push up the price.

AES is also close to a support level.

Read Also: Trump’s Tariffs May Trigger An Inflation Shock – But Not A Lasting One, Goldman Sachs Says

If a stock is trending lower, there are more shares for sale than there are to be bought. At a support level, the dynamic changes. There is enough demand to absorb all of the supply and the price stops heading lower.

Sometimes, stocks reverse and rally after they reach a support level. As you can see on the chart, this is what happened the last two times AES dropped to around $9.70.

On Friday, a bullish engulfing pattern formed on the chart. This could signal a change of leadership from the bears to the bulls.

On Friday morning, it looked like the recent downtrend would continue. The stock opened at a lower price than it closed at on Thursday.

But by the close, the tide had turned. The buyers overpowered the sellers and pushed the price higher. The closing price on Friday was above the opening price on Thursday.

Most volume in a stock typically trades near the open or close. Trading through Thursday's opening and closing prices shows that the buyers were very aggressive. The trading range on Friday “engulfed” Thursday's range.

As AES is oversold at support and just had a reversal pattern form on the chart, this means there is a good chance the stock moves higher.

Read Next:
• Nvidia’s Q1 Earnings Loom, While AMD’s Edge AI Bet Could Change The Narrative

Photo: Shutterstock