Stock Of The Day: Is Teradyne At A Crossroad?

Trading in Teradyne, Inc. (NASDAQ:TER) is quiet on Tuesday. This follows yesterday's gain of almost 13%. Analysts attribute the move to a brokerage upgrade.

Some traders are watching Teradyne for a potential trading idea. This is why it is our Stock of the Day.

Some price levels have more importance than others. This is a fundamental and important principle of the financial markets.

Traders refer to these levels as support and resistance levels.

If there are more shares of a stock for sale than there are to buy, the price will tend to trend lower. At support levels, there are as many or maybe even more shares to be purchased than to be sold. This is why downtrends end when they reach them.

Resistance levels are the opposite of support levels.

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If there are more shares to be bought than to be sold, the price will trend higher. At resistance, there are as many or more shares for sale as there are to be purchased. This is why uptrends end when they reach resistance levels.

These important price levels are like a fork in the road. When a stock reaches one of these levels, it typically doesn’t consolidate for an extended period of time. They tend to either reverse or break the level and form a new trend.

As you can see on the chart below, Teradyne is approaching the $141 level. There was resistance there in December and January.

Stocks reverse off resistance and head lower when anxious sellers start undercutting each other's prices. They know that the buyers will go to whoever sells at the lowest price, and they don't want to miss out.

This undercutting forces the stock into a downtrend.

But sometimes when a stock reaches resistance, the buyers eventually overpower the sellers. The resistance breaks, and the stock makes a rapid move higher.  Buyers need to outbid each other again to draw in sellers.

Essential price levels are like a crossroads in the market. When a stock reaches one, a reversal or breaking of the level usually occurs quickly. This may happen to Teradyne if it reaches $141.

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