Here's Why Virgin Galactic (SPCE) is Poised for a Turnaround After Losing 41.7% in 4 Weeks

Virgin Galactic  (SPCE) has been on a downward spiral lately with significant selling pressure. After declining 41.7% over the past four weeks, the stock looks well positioned for a trend reversal as it is now in oversold territory and there is strong agreement among Wall Street analysts that the company will report better earnings than they predicted earlier.

How to Determine if a Stock is Oversold

We use Relative Strength Index (RSI), one of the most commonly used technical indicators, for spotting whether a stock is oversold. This is a momentum oscillator that measures the speed and change of price movements.

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

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

So, by this measure, if a stock has gotten too far below its fair value just because of unwarranted selling pressure, investors may start looking for entry opportunities in the stock for benefitting from the inevitable rebound.

However, like every investing tool, RSI has its limitations, and should not be used alone for making an investment decision.

Why a Trend Reversal is Due for SPCE

The RSI reading of 20.71 for SPCE is an indication that the heavy selling could be in the process of exhausting itself, so the stock could bounce back in a quest for reaching the old equilibrium of supply and demand.

The RSI value is not the only factor that indicates a potential turnaround for the stock in the near term. On the fundamental side, there has been strong agreement among the sell-side analysts covering the stock in raising earnings estimates for the current year. Over the last 30 days, the consensus EPS estimate for SPCE has increased 0.6%. And an upward trend in earnings estimate revisions usually translates into price appreciation in the near term.