I’ve spoken many times about the “Rubber Band Effect” which is when a stock moves far above or below a major moving average leaving us in a position where the price is now drawn back to the average price or fair value.
You can see how, in the past, the stock eventually gravitates back to the average but there is much more to this story. We have a hammer pattern that has formed on a major support level and the volume is dropping. The drop in volume tells us the sellers are slowing down and the buyers are starting to move in.
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