Stock Of The Day: Where Will The MercadoLibre Sell-Off End?

MercadoLibre, Inc. MELI is little changed Thursday. The stock has been in a downtrend, and there is a good chance it will continue to move lower. The stock has broken support around $1,945, and this can be a bearish dynamic.

Our team of technical analysts has made it our Stock of the Day.

Support is a price level or range where there is a significant amount of buy interest. There is as many, or maybe even more, shares to be bought as there are to be sold. This is why downtrends end or pause when they reach support.

You can see on the chart that the $1,945 level was support in early March.

Sometimes stocks reverse and rally after reaching support, like MercadoLibre did then. This happens when some of the buyers who created to support raise their bid prices to get ahead of other buyers. This can lead to a snowball effect as other buyers do the same. This forces the stock higher.

Read Also: Commerce Secretary Lutnick Says US Markets Will Perform ‘Extremely Well’ Long Term Despite Trump Tariff Selloff

But sometimes when a stock reaches support, the sellers eventually overpower the buyers and push the price lower. When this happens, traders say the support has ‘broken.' This just happened with MercadoLibre.

This isn't merely symbolic. It illustrates an important dynamic. It shows that the traders and investors who created the support with their buy orders have either finished or canceled them.

With this large amount of demand taken out of the market, the stage could be set for a move lower. People who wish to sell will be forced to be aggressive and push the stock down if they want to draw buyers back into the market.

If MercadoLibre trends lower, there is a good chance the next support level will be around the $1,800 level. This level was support in January, and there tends to be support at levels that previously had been support.

There are people who sold their shares at the support that regretted doing so when the price rallied after. Some of them vowed to buy their shares back if they could eventually get them at the same price they were sold.

So, if the stock reaches the $1,800 level they will place buy orders. If there are enough of them, it will create support at the level again.

At this point, some traders would consider buying. They will be expecting a rally off the support.

Read Next:
• Trump’s ‘Reign Of Tariffs’ Unleashes ‘D-Day On Wall Street,’ Analyst Warns Of Stagflation Risk

Photo: T. Schneider via Shutterstock