Shares of Virgin Galactic Holdings, Inc. (NYSE:SPCE) have been on fire, gaining about 50% over the past week alone. There’s a good chance the rally stalls out, however, at least in the short term.
Many computerized trading programs are driven by probability theory and it states that all trading should be within two standard deviations of the average. If a stock exceeds this threshold, the programs will be expecting a reversion to the average.
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As you can see on the following chart, the stock has reached an extreme above its recent average. The red line is two standard deviations above the 20-day average price and the shares are trading right at it.
This will bring sellers into the market. They will be expecting a reversion to the average or a sell-off, which could put a top on shares.
