Stock Of The Day: Micron Technology Price Level Converts From Support To Resistance And Vice Versa

Micron Technology, Inc. MU continued its upward trajectory Thursday after reporting upbeat quarterly results.

Good traders know how to identify important price levels. These are called support and resistance levels. Sometimes these levels are clearly defined. As you can see on the chart, this is the case with Micron and the $108.80 level. This is why we have made it our Stock of the Day.

If a stock is trending lower, there isn't enough demand, or buy orders, to absorb all the supply, or sell orders. As a result, sellers must offer their shares out at a discount to gain the interest of buyers. This forces the price lower.

But when the shares reach a support level, the tide turns. There is enough demand to take in all the supply. This is why selloffs end or pause when they reach support.

If a stock is trending higher, there isn't enough supply, or sell orders, to satisfy the demand, or fill all the buy orders. As a result, buyers will need to pay premiums to get the interest of sellers. This pushes the price higher.

But when the stock reaches a resistance level, things change. There is enough supply to satisfy or fill all the demand. This is why rallies end or pause when they reach resistance levels.

A common occurrence in financial markets is for price levels that had previously been support converting into resistance. Another common occurrence is price levels that had been resistance converting into support.

The chart below shows a clear example of this. The $108.80 has been both support and resistance since March.

Read Also: Micron’s AI-Driven HBM Demand and Data Center Growth to Fuel Stock Upside, Analysts Say

Support can turn into resistance because of buyer’s remorse.

Some people buy shares when the stock is at support. If the price rallies after they do so, they think their decision to buy was a good one.

But if the support eventually breaks and the price heads lower, some of them experience buyer's remorse.

A number vow to get out of their positions if they can do so without losing money. As a result, if the shares rally back to what had been support, they place sell orders. If there are enough of these sell orders, the level that had been support will turn into a resistance level.

And what was resistance can turn into support because of seller's remorse. Some traders and investors think their decision to sell was a good one if the price trends lower after.

But if the price eventually breaks the resistance and trends higher, some of them experience seller's remorse. Many decide to buy their shares back if they can get them for the same price they were sold at.

So, if the stock eventually reverses and gets back to what had been resistance, they place buy orders. If there are enough of these buy orders, it will turn what was resistance into support.

In the financial markets, some price levels are more important than others. The chart of Micron Technology shows a clear illustration of this.

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