Down 10.2% in 4 weeks, here’s why Bay Commercial Bank (BCML) looks ripe for a turnaround

Commercial Bank of the Bay (BCML) has been on a downward spiral lately with significant selling pressure. After falling 10.2% over the past four weeks, the stock looks well positioned for a trend reversal as it is now in oversold territory and Wall Street analysts agree the company will post strong better profits than they predicted earlier.

Here’s how to spot oversold stocks

We use the Relative Strength Index (RSI), one of the most commonly used technical indicators, to determine if a stock is oversold. It is a momentum oscillator that measures the speed and change of price movements.

The RSI fluctuates between zero and 100. Usually, a stock is considered oversold when its RSI reading falls below 30.

Technically, every stock oscillates between overbought and oversold, regardless of the quality of its fundamentals. And the beauty of the RSI is that it helps you quickly and easily check if a stock price is reaching a reversal point.

So, by this metric, if a stock has fallen too far below its fair value simply because of unwarranted selling pressure, investors may start looking for opportunities to get into the stock to benefit from the inevitable bounce.

However, like any investment tool, the RSI has its limitations and should not be used alone to make an investment decision.

Here’s why BCML could experience a turnaround

The RSI reading of 29.21 for BCML is an indication that the selloff may be running out, so the stock may be bouncing back in a quest to reach the old supply and demand balance.

This technical indicator is not the only factor calling for a potential rebound for the stock. There is also a fundamental indicator. A strong agreement among sell-side analysts covering BCML to raise earnings estimates for the current year has led to the consensus EPS estimate increasing by 2.5% over the past 30 days. And an upward trend in earnings estimate revisions usually translates into short-term price appreciation.

Additionally, BCML currently has a Zacks #2 (buy) rating, meaning it is in the top 20% of over 4,000 stocks we rank based on trends in earnings estimate revisions and BPA surprises. This is a more conclusive indication of the stock’s potential recovery in the near term. You can see the full list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>

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