Stock Of The Day: Starbucks Finds Support At $94, Will A Bidding War Force Stock Into An Uptrend?

Wall Street doesn't like uncertainty. This is why shares of Starbucks Corporation SBUX fell after the company withdrew its guidance.

As you can see on the chart, the stock found support around the $94 level. Stocks tend to find support at price levels that had been support before. This is why our team of trading experts has made it our Stock of the Day.

Markets find support at levels that had previously been support because of investor and trader psychology. It is because of remorseful sellers.

There are people who sold Starbucks at $94 who regretted doing so when the stock rallied soon after. A number of them think they made a mistake and vow to buy their shares back.

But they don't want to pay a higher price than they sold their shares for. As a result, when the stock eventually sold off and returned to their selling price, they placed buy orders. This large concentration of orders has formed support at the same price that had previously been support.

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Stocks also tend to rally after they drop to support. This can also be seen on the chart. It is a result of buyer's anxiety.

Support is a large concentration of investors and traders who are looking to buy shares at, or close to, the same price. In this case, it's $94.

Sometimes some of these buyers become anxious. They know that the sellers will go to whoever is willing to pay the highest price. They don't want to miss the trade, so they increase the prices that they are willing to pay.

Other anxious buyers see this and do the same thing. It can result in a bidding war that forces the stock into an uptrend.

Successful traders understand that most moves in the market are due to psychology. They know that stocks can find support at price levels that had previously been support because of remorseful sellers placing buy orders. They also know that stocks can rally off of support levels because of anxious buyers.

When a stock drops to a price that had previously been support, there can be an opportunity to profit.

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