If a market is trending lower, it is out of equilibrium. There aren't enough buy orders to absorb all of the sell orders. Because of this, sellers need to offer their shares at a discount to get buyers interested. This forces the stock into a downtrend.
At a support level, there is enough demand — buy orders — to absorb all of the supply — sell orders. This is why sell-offs end or pause when they reach them.
If the price eventually moves below the support, traders say the support was broken. As you can see on the chart, Apple Inc. AAPL may be breaking support around the $218 level. This is why it's our Stock of the Day.
This move could be related to the lower-than-expected demand for the iPhone16.
When support “breaks” a new downtrend may form. If the price is below the support level, it illustrates an important supply and demand dynamic. It means investors and traders who created the support with their buy orders are gone.
They have canceled or finished their orders. Either way, they have left the market. This could set the stage for a move lower.
With buyers out of the way, sellers have difficulty finding someone to sell their shares. The market is out of equilibrium. As a result, to get buyers interested, the sellers need to push the price lower. This results in a new downtrend forming.
Read Also: iPhone 16 Pro Demand Lags, Longer Wait Times Globally, China Shows Smaller Gap: Analyst
There is a reason why there was support for Apple around $218. In the stock market, some price levels are more important than others. And the $218 level has been important for Apple since June.
It was a resistance level and then it converted into a support level. Resistance can turn into support because of seller's remorse.
There are traders and investors who regret their decision to sell when the stock is at resistance if the price eventually moves higher. Some of them decide to buy their shares back if they can get them for the same price they were sold.
So, when the price eventually falls back to the level that is previously resistance, they place buy orders. If there are enough of them, it forms support at the price that was resistance.
Holders of Apple need to be cautious. Now that this support appears to be broken, the stock may be headed lower.
Photo: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
