Stock Of The Day: Could Universal Health Be Poised For A Comeback?

Universal Health Services Sees Modest Recovery After Sharp Decline

Following a steep drop of over 6% on Wednesday, Universal Health Services, Inc. (NYSE: UHS) experienced a slight uptick in trading on Thursday. The previous day's decline was triggered by Bank of America expressing ongoing concerns about the hospital sector's outlook.

Why Is UHS Gaining Today?

Currently highlighted as the Stock of the Day, Universal Health Services is considered both oversold and positioned at a support level. These factors could indicate a potential upward movement for the stock.

Many trading approaches are based on the principle of mean reversion, which suggests that when a stock moves too far in one direction, it often reverses course and returns toward its average value.

Some of these methods rely on statistical analysis and probability theory. For example, standard deviation is a key statistical measure, and probability theory states that approximately 95% of data points should fall within two standard deviations of the mean.

This statistical framework can be applied to stock price movements as well.

On the Universal Health Services chart, the red line represents a Bollinger Band, which is set two standard deviations below the 20-day moving average. The current stock price is trading beneath this line.

Since 95% of price action typically remains within two standard deviations of the mean, the fact that UHS has fallen below this range suggests it is oversold.

This scenario often attracts buyers who anticipate a rebound toward the average price, potentially sparking an upward trend.

Additionally, Universal Health Services has reached a notable support area.

Looking at the chart, the $208 level acted as resistance back in October. When the stock broke above this point, some investors who sold at that price regretted their decision. Many of them are now eager to repurchase shares if the price returns to that level, creating a strong support zone where resistance once existed.

Stocks that are both oversold and sitting at support often experience a rally, and this could be the case for UHS.

Image credit: JHVEPhoto via Shutterstock

UHS Stock Snapshot

• Symbol: UHS
• Company Name: Universal Health Services Inc
• Current Price: $212.13
• Change: +1.79%