Stock Of The Day: Historic Technical Analysis Lesson In CVS

Shares of CVS Health Corporation CVS are trading lower on Thursday. This move could break important support. A new downtrend may be about to form.

Our team of expert traders and technical analysts has made it our ‘Stock of the Day'.

In the stock market, some price levels are more important than others. These are called ‘support' and ‘resistance' levels.

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If a market is trending lower, it is because the sellers are overwhelming the buyers. There aren't enough buy orders to fill all of the sell orders.

The sellers are forced to push the price lower and this creates a downtrend. When there is eventually enough demand, the price stops moving down.

This happens at support levels. When a market is trending higher, the opposite dynamics are in play. There aren't enough sell orders to fill all of the buy orders.

The buyers are forced to push the price higher and this creates an uptrend. When there is eventually enough supply, the price stops moving higher.

This occurs at resistance levels.

The term ‘market memory' means that some important support and resistance levels can retain their importance for a long time. It could be weeks, months, or even years.

As you can see on the short-term chart, over the past year the $52.50 level has been important support for CVS. When the shares got there in May and November, a reversal followed.

Short Term Chart

Now it looks like this important level has broken. The buyers may have left the market and the sellers may need to force the price lower to draw them back in.

This level is important for CVS for a long time.

The 8-year chart of CVS illustrates an example of market memory.

The $52.50 level first became support in May 2019. It was a support level again in March 2020.

And it was support again this past June.

Long Term Chart

‘Market Memory' is real. Some analysts may have a hard time believing an important price level can be important for so long. But the chart of CVS proves it.

Now that the support at this level has finally been broken, there is a good chance the move lower has just gotten started.

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