Shares of Opendoor Technologies Inc. (NASDAQ:OPEN) climbed higher on Monday. Analysts attribute the move to bullish comments from a hedge fund manager on social media.
But the stock is extremely overbought, and it is getting close to a price that had previously been a peak. This is why we have made it our Stock of the Day.
The term ‘overbought' refers to a stock's momentum or how far it has moved in a given period of time. If traders have been emotional and aggressive and pushed the price sharply higher, it is called overbought.
The lower part of the chart is the Relative Strength Index (RSI). It is a popular method for measuring momentum. If the blue line exceeds the horizontal red line, it indicates overbought conditions.
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The top RSI is based on a specific number of days. As you can see, from this perspective, the shares are extremely overbought in the short term.
The lower RSI is based on weeks. From this perspective, the shares are also overbought. They are overbought in both the short term and the long term.
These dynamics will draw sellers into the market. They will be anticipating a reversion to the mean or a move lower. Their selling could put pressure on the stock and drive it down.
Opendoor is also getting close to a level that has previously been a peak. As you can see on the chart, the $4.85 level was the top in December 2023.
There tends to be resistance at levels that have been resistance before because of psychology. Some people bought at the top and are still holding onto losing positions.
If the shares return to their buy price and they can sell their stock at breakeven, they will. If there is a large enough concentration of these orders, it will create resistance at the level once again.
There is no way to know for sure when the Opendoor rally will end. But there is a good chance it happens around $4.85.
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