Stock Of The Day: Why Would Resistance For Zillow Turn Into Support?

Zillow Group, Inc. Z shares are trading higher. The company reported earnings and investors positively reacted. Estimates for the earnings were 29 cents and came in at 35 cents. Revenue was $581 million versus estimates of $555 million.

Our team of technical analysts made Zillow our Stock of the Day because it illustrates a common dynamic in the market that savvy traders use to profit.

As you can see on the chart, in February and early March levels around $58.50 were resistance for the stock. In September this resistance was broken. Then the stock eventually fell back to the $58.50 level that was previously resistance converted into support.

The same thing happened at the $53.70 level. It was resistance in July and converted to support at the beginning of September.

At the end of September, the $68.40 level was resistance — and now it has become a support level.

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Price levels resistant converting into support is a common occurrence in not just the stock markets, but in all financial markets.

It happens because of “seller's remorse.”

There are investors and traders who sell while the stock is at resistance who think they made a good decision if the price trends lower after. But if the trend reverses, the resistance is broken and the price moves higher, many who sold come to regret their decision to do so.

Some of these remorseful sellers vow to buy their shares back.

But they will only do so if they can buy them for the same price they were sold. So as a result, if the stock eventually falls back to the selling price they place buy orders.

If there are enough of these orders it will cause support to form at the price that had previously been resistance.

If a stock is trending lower and a trader is looking for insight into where to buy it, they should look at price levels that had previously been resistance. There is a good chance the stock finds support at them. They may even reverse and rally.

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