Marvell Technology, Inc. (NASDAQ:MRVL) shares are trading higher on Tuesday after dropping more than 12% on Monday. Once the company announced plans to acquire Lumentum Holdings Inc. (NASDAQ:LITE), investors set the stage for a reversal. The shares are now oversold and at a support level. This is why Marvel is the Stock of the Day.
In April and May, the $170 level was resistance for Marvell. When this resistance broke and the price moved higher, many who sold at it regretted it.
Some decided that, if they could, they would buy their shares back at the same price they sold them. When the stock dropped back to $170 in July, they placed buy orders.
These buy orders created support at the price that had been resistance.
When the shares rallied off the support, many of the people who sold at it regretted doing so. Some decided to buy their shares back if they could eventually get them at their sale price.
When Marvell fell back to this level yesterday, these remorseful sellers placed buy orders. These orders created support.
The shares are also oversold. Emotional and aggressive sellers have pushed them below their typical or average trading range.
Many trading strategies are based on mean reversion. Oversold conditions will draw buyers into the market. They anticipate a reversion to the mean or a move higher.
Their buying can create an uptrend.
Psychology and emotions are crucial in financial markets. The Marvell chart illustrates how sellers’ remorse can turn resistance into support. It also shows how this remorse can keep support intact.
Emotional sellers can create oversold conditions.
Being oversold at support can be bullish. Marvell may be about to head higher.
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