Shares of Oracle Corporation ORCL are trading significantly higher Wednesday. This comes after the company said that it won several billion-dollar contracts in the past quarter.
But some traders believe the move higher may be overdone, and they are considering how to position themselves for a possible reversal. This is why Oracle is our Stock of the Day.
A common mistake that new traders make is trying to be precise. If they want to buy a stock, they try to get the lowest price of a range or a selloff. And if they are selling, they want to get the exact high price of the range or rally.
This can't be done consistently, even by the best traders. The old Wall Street saying ‘only liars can get the bottom or top' refers to this.
A logical and more efficient way to trade is to let an anticipated move start before taking a position.
There is a chance Oracle reverses, but there is also a chance that it keeps moving higher. A trader anticipating a reversal and move lower may wait for Oracle to reverse and drop below today's opening price.
The opening price is considered by some to be the most important, so there should be support at this price if the stock drops back to it. If the shares break this support, there could be a large move lower.
One reason why support forms in a market is seller's remorse. People sell something and regret doing so if the price heads higher. Some vow to buy their shares back if they can eventually get them for their sale price.
This buying can create support.
Oracle gapped up this morning. It opened at a much higher price than it closed at yesterday.
There was no trading in between these prices, and if there was no trading, there is no one who sold who will be trying to buy their shares back if the stock falls back into this range. If Oracle does drop back below the opening price into the levels it gapped up through, it may make a rapid move lower.
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