Stock Of The Day: When Will B2Gold Corp Reverse?

B2Gold Corp. (NYSE:BTG) shares are consolidating on Tuesday. They have been rallying due to the increase in the price of gold.

But the rally may soon pause or even end. The shares are overbought and approaching a resistance level. These can be bearish dynamics and it's why B2Gold is the Stock of the Day.

Overbought means that a stock has been aggressively bought and is trading above what would be its typical or normal range. This is an important dynamic.

Many trading strategies are built around the concept of reversion to the mean. If a stock goes too far in one direction, there is a good chance it reverses and heads back in the other direction.

Overbought conditions will draw sellers into the market. They will be anticipating a reversion to the mean or a move lower. Their selling could put downward pressure on the stock.

The red line on the chart is two standard deviations above the 20-day moving average. According to statistics and probability theory, 95% of trading should occur within two standard deviations of the mean.

As you can see on the chart, shares of B2Gold have exceeded this threshold. This means that they are overbought.

There was resistance around the $5.90 level in October. Some of the traders and investors who purchased shares then regretted doing so when the price dropped soon after.

A number of these people decided to hold on to their losing positions. But they also decided that if they could ever sell their stock and exit at breakeven, they would.

This means that if B2Gold makes it back up to $5.90, they will be placing sell orders. If there is a large concentration or number of these sell orders, it will create resistance at that level.

The combination of being overbought while at resistance can be bearish dynamics for a stock. There is a good chance the rally ends or pauses around $5.90.

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