Stock Of The Day: Is This The Bottom For ServiceNow?

ServiceNow, Inc. (NYSE:NOW) has been trending lower over the past year, and Friday, April 10, is no different. But the downtrend could end here.

Shares of the software company are oversold and at a possible support level. These can be bullish dynamics, which is why ServiceNow is our Stock of the Day.

Many trading strategies are based on reversion to the mean. If something gets pushed too far in one direction, there is a good chance it will reverse and head back in the other direction.

For example, most of the time, a stock stays within its normal or typical trading range. If emotional and aggressive sellers push the stock below this range, traders say it is ‘oversold'.

This can be important.

There will be traders who will be anticipating a revision to the mean or a move higher. Their buying may push the shares up.

One way traders determine if a stock is oversold is with the RSI Indicator. This is on the lower part of the chart.

If the blue line is below the lower red horizontal line, it indicates oversold conditions. As you can see, that's the case now.

ServiceNow is also at a price level that may provide support.

As you can see on the chart below, there has been support for ServiceNow around the $85 level. And sometimes stocks find support at prices that had been support previously. This is a very common thing in the financial markets.

ServiceNow Technical Analysis

It's due to people who regret selling shares at a support level if the price rallies. Some of the unhappy sellers vow to buy their shares back.

But they will only do so if they can get them for the prices they sold them for. So, when the shares drop back to the price that has been support, they place buy orders. If there is a large quantity of these orders, it will create support again.

The combination of being oversold while at support means there is a good chance the long downtrend in ServiceNow may finally have ended.

Image: Shutterstock