Stock Of The Day: Nike Support Level Due To Important Market Principle

In financial markets, certain price levels are more important than others. Sometimes the reason why a level is important is clear but many times it isn't. The good news for traders is they don't need to know why. They just need to be able to identify which ones are.

For example, as you can see on the chart of Nike Inc. NKE the $88.50 level is important. This is why our team of trading experts has made it our Stock of the Day.

In September 2023, $88.50 was a support level. It is not clear why. It was also a support level in April. But this time, the reason why it was support was due to an important market principle.

There tends to be support at price levels that had been support before. This is a common occurrence not just in the stock market, but in all financial markets.

It is the result of investor and trader psychology. It happens because of remorseful sellers.

These traders and investors sold while the shares were at the support. They thought the price was headed lower. But it turns out that they were wrong.

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The stock moved higher after they were done selling. A number of these disappointed traders and investors decided to by their shares back if they can get them for the same price they sold them at.

As a result, when Nike returned to this level in April they placed buy orders. And there were so many of these buy orders that it created support at the same price that had been support before.

Remorseful sellers can keep support intact for an extended time-period.

In July, the support was finally broken and the price moved lower. But the stock reversed and has rallied back up to $88.50. And as you can see on the chart, the level that had been support is now resistance.

Support can turn into resistance because of buyers' remorse.

Some of the people who purchased shares while they were at support regretted doing so when they started to lose money. Many of them decide to sell but they don't want to take a loss.

As a result, now that the shares are back to their buy price they place sell orders. This large concentration of sell orders has created resistance at the same price level that was previously support.

In financial markets, some price levels are more important than others. This is the case with the $88.50 level for Nike.

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