In the fast-paced world of trading, where momentum fuels fortunes, a sudden surge can signal a brewing storm. TKO Group Holdings ( TKO ), Inc. continues to climb on Tuesday, after Monday's rally of more than 10%. The move was driven by news that the company secured a seven-year, $7.7 billion deal for exclusive UFC media rights in the U.S.

TKO is in positive territory. See the full story here.

The stock is at a critical price level. There has been resistance around $180. Some analysts believe that it will reverse and head lower. This is why it is our Stock of the Day.

Some trading strategies and methods are based on the concept of reversion to the mean. If a stock gets overextended in one direction or the other, there is a good chance that it will eventually reverse.

Is TKO Group’s Rally Just A Mirage?

Many of these strategies and methods are driven by statistics and probability theory.

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A statistical concept that is used by these strategies is standard deviation. According to statistics and probably theory, 95% of trading should occur within two standard deviations of the average.

This means that if a stock exceeds this threshold, either to the upside or downside, there is a good chance that it will reverse.

The Statistical Case For A Potential Reversal

The red line on the TKO chart is called a Bollinger Band. It is two standard deviations above the 20-day moving average.

As you can see, the stock is currently above it. This means it is considered to be overbought.

This will draw in sellers who anticipate a move lower. Their selling could put pressure on the shares.

TKO is also trading around a resistance level. There has been a large amount of sell interest around $180.

Why Resistance At $180 Signals Caution

Sometimes, when a stock reaches a level of resistance while being overbought, the sellers overpower the buyers and the price goes lower. This is what happened to TKO when it reached the $180 level at the end of June.

This combination of being simultaneously overbought while at resistance can be a bearish dynamic. TKO may be on the verge of another selloff.

TKO Price Action: TKO Group Holdings ( TKO ) shares were up 0.60% at $181.08 at the time of publication on Tuesday, according to Benzinga Pro data.

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