PepsiCo, Inc. (NYSE:PEP) shares are little changed on Tuesday. They have trended lower as investors sold consumer staples stocks and shifted their money into the financial sector.
But now, Pepsi is at support and oversold. These conditions could set the stage for a reversal and move higher. This is why Pepsi is the Stock of the Day.
Stocks go down when the market is out of equilibrium.
It’s “Economics 101.” If there is more supply, or shares for sale, than there is demand or shares to be bought, the price will slide lower.
Traders and investors who wish to sell will be forced to undercut each other if they want to draw buyers into the market. This will make the shares go into a downtrend.
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Stocks stop going down when they reach support levels. As you can see on the chart, there has been support for Pepsi around $140. When it dropped to this level in September, the sell-off ended.
At support levels, there are as many or maybe even more shares to be bought than there are to be sold. Traders can sell all they wish without having to push the price lower.
Pepsi is also oversold.
Most of the time, a stock stays within its usual or typical trading range. If sellers are emotional and aggressive, they can push it below this range. When this happens, traders say the stock is oversold.
This can draw buyers into the market because they will be anticipating a reversion to the mean or a move higher. Their buying could put upward pressure on the shares.
A popular way to determine if a stock is oversold is the use of the RSI momentum Indicator. It is on the lower part of the chart. If the blue line crosses below the horizontal red line, the stock is considered to be oversold. That’s the case now.
The combination of being oversold while at support means there is a chance Pepsi’s downtrend has ended. It may even reverse and move higher.
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