Stock Of The Day: Delta Airlines Finds Support At This Level After Disappointing Earnings

The price action in Delta Air Lines, Inc. DAL offers a great lesson in technical analysis. When markets sell off, they tend to find support at price levels that have previously been peaks or tops.

As you can see on the chart, the $42.50 level was the peak or top for Delta in December and January. The stock is making a large move lower today because of disappointing earnings. Not surprisingly, it found support right around $42.50. This is why our team of trading experts has made it our Stock of the Day.

Former peaks or resistance levels can become support because of trader psychology. It is a common occurrence in the market.

Some of the people who sold their shares while they were at resistance thought they made a good decision after the price headed lower. But it eventually reversed and moved higher than the resistance When this happened, some of these sellers decided that they made a mistake. Many of them vow to buy their shares back if they can get them at the same price they were sold for.

So, now that the stock has dropped back to around $42.50 many of these remorseful sellers are placing buy orders. And this large concentration of buy orders has created support. That is why the shares stopped moving lower when they reached this important price.

As you can also see on the chart, this same dynamic also occurred for Delta at the $37.00 level. It was a peak or top in October and November. Then it converted into a support level in January.

Savvy traders don't guess. They let the market tell them what to do. They know that if a stock is in a freefall or heading lower, there's a good chance that the selloff may end when the price drops to a level that had previously been a peak or top.

Now Read:

• Inflation Data Sparks Rush For Gold, Real Estate, Treasuries, Yen: Traders See September Rate Cut As Done Deal