Datadog, Inc. (DDOG) shares have been drifting lower since the company reported earnings back in November. But here's the thing: the stock might be setting up for a bounce.

Two technical factors are lining up in Datadog's favor right now. The shares are oversold, and they're sitting at what looks like a support level. When these dynamics align, they can create the conditions for a reversal.

Let's talk about what "oversold" actually means. Many trading strategies revolve around the idea of reversion to the mean. The basic concept is simple: when a stock gets stretched too far in one direction, it tends to snap back.

Most of the time, stocks trade within their normal range. But emotions can get the better of people. When buyers get aggressive and excited, they push prices above the average range. Traders call this overbought, and it often attracts sellers who expect things to normalize.

The flip side happens when sellers get emotional and aggressive. They drive prices below the normal range, creating oversold conditions. This tends to attract buyers who see an opportunity and expect a bounce. Their buying activity can push shares higher, turning into a self-fulfilling prophecy.

There are different ways to measure whether a stock is overbought or oversold. One popular tool is the Relative Strength Index, or RSI. When the RSI drops below a certain threshold, it signals oversold conditions. That's where Datadog sits right now, which could draw buyers into the market.

The second factor working in Datadog's favor is support. Back in September, the stock was trading around $140.50 before rallying higher. Some investors who sold at that level likely regretted it when the price climbed. They might have told themselves they'd buy back in if they got another chance at the same price.

Well, Datadog has dropped back to roughly that level. Those regretful sellers are now placing buy orders, creating what technicians call support. It's like a price floor where demand shows up.

When you combine oversold conditions with a stock sitting at support, you get a setup that often leads to a reversal. Neither signal is foolproof on its own, but together they increase the odds of a move higher. That's why Datadog is worth watching right now.