Broadcom Inc. (NASDAQ:AVGO) is consolidating Monday. On Friday, the shares fell almost 12% after the company posted earnings. They are approaching a support level. This is why Broadcom is our Stock of the Day.
The selloff may stop at this level. It may even rebound after reaching it.
Support is a price level, or narrow price range, where there is a large amount of buy interest. If a stock is trending lower it's because there aren't enough shares to be bought to absorb all the supply or shares for sale.
Sellers are forced to undercut each other to attract buyers, and this forces the stock into a downtrend.
Stocks stop going down when they reach support. As you can see on the chart, there has been support for Broadcom around $330.
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Support can stay intact for an extended period time because of remorseful sellers. These are people who regret selling their shares at support after the price moved higher. Some of them decide that, if they can, they will buy their shares back at the same price they were sold for.
As a result, when the stock returns to the level that had previously been supported, these unhappy sellers place buy orders. If there is a sufficient volume of these orders, it will form support at that level.
Sometimes stocks rally after they reach support. You can see this on the chart below.
Stocks rally off of support when some of the buyers who created the support become impatient. They are afraid another trader will be willing to pay a higher price than they are, and they know this is who the sellers will go to.
As a result, these impatient buyers increase the prices they are willing to pay. Other impatient buyers see this, and they do the same thing. This could force the stock into an uptrend, and it may be about to happen with Broadcom.
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