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Shares of SFL Corporation Ltd. (NYSE:SFL) were crushed yesterday. The Hamilton, Bermuda-based company announced that it was offering $100 million of new shares.
Some investors are concerned that this would dilute the value of their holdings so they sold aggressively.
But the stock could be about to bounce back. There may have been a capitulation. They also have dropped to a price level that had previously been support. This is why our team of trading experts made it our ‘Stock of the Day'.
A capitulation occurs when sellers throw in the towel and give up. They become sick and tired of watching their stocks move lower. Finally, they decide to sell their shares regardless of the price. As a result, huge amounts of volume trade.
And this could be bullish for the stock.
After a capitulation, some traders and investors may decide that the move lower was an overreaction, so they enter the market as buyers. But they have a hard time finding someone to buy shares from. The sellers have been cleaned out.
So, these buyers will have no choice but to increase the prices they are willing to pay to draw sellers back into the market. This could force the price higher.
As you can see on the chart, SFL found support at the $11.60 level. This could also be a bullish dynamic.
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Support is a large group of traders and investors who are looking to buy shares at, or close to, the same price. In this case it's $11.60.
Sometimes stocks rally after they drop to support. This happens when some of the potential buyers become concerned that they are going to miss the opportunity to acquire shares.
They know that the sellers will go to whichever buyer is willing to pay the highest price. As a result, they increase their bid price. For example, instead of paying $11.60, they may increase their bid to $11.70.
Other concerned buyers may see this and decide to increase their bids as well. This could result in a snowball effect which pushes SFL higher.
Finding support after a capitulation can be a bullish setup for a stock. There is a good chance SFL recovers and a new uptrend forms.
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