In the dynamic world of financial markets, certain price levels hold more weight than others. While sometimes the reason for their importance is clear, often it’s shrouded in mystery. The good news for traders is that they don’t need to understand the ‘why,’ they just need to identify these crucial levels. Take Nike Inc. (NKE) for example; the $88.50 mark holds significance. This is why our team of trading experts has declared it our Stock of the Day.
In September 2023, the $88.50 level acted as support for Nike’s stock price. While the exact reason remains unclear, it’s worth noting that it also acted as a support level back in April. This time, however, a fundamental market principle came into play: past support often tends to become support again. This pattern isn’t unique to the stock market; it’s a common occurrence across all financial markets. It’s a direct result of investor and trader psychology, specifically, the actions of ‘remorseful sellers.’
These sellers, in their eagerness to anticipate a price decline, sold their shares while the stock was at the support level. Their prediction proved wrong, and the stock rose. Feeling the sting of a missed opportunity, many of these disappointed sellers decided to buy back their shares if they could get them for the same price they sold them at. As a result, when Nike’s stock price returned to that $88.50 level in April, there was a flurry of buy orders placed, solidifying it as a support level once more.
The impact of remorseful sellers can keep support intact for a considerable period. In July, the support finally crumbled, and the price dipped lower. But the stock quickly reversed course, rallying back up to $88.50. Interestingly, the level that had been support now became resistance. This transformation can be attributed to another psychological factor: ‘buyers’ remorse.’
Some of the investors who bought shares at the previous support level experienced regret as they started losing money. Many of them decided to sell, but they were reluctant to accept a loss. Consequently, when the shares returned to their initial purchase price, these investors placed sell orders, creating a high concentration of sell orders at that price level. This surge in sell orders transformed the once supportive $88.50 level into a resistance barrier.
In conclusion, certain price levels in financial markets wield significant influence. The $88.50 level for Nike serves as a prime example. The interplay of investor psychology, specifically ‘remorseful sellers’ and ‘buyers’ remorse,’ can profoundly impact how these levels evolve, shifting from support to resistance and back again, shaping the trajectory of the stock price.
