Shares of Dick’s Sporting Goods, Inc. (DKS) are facing a significant downturn following a disappointing earnings report. While the company exceeded analyst expectations, the guidance provided by management failed to impress investors, leading to a sharp decline in the stock price.
Despite the current slump, there’s a possibility that the stock could rebound. A key factor to consider is the potential support level around $187. This price point previously served as a support level, and due to the psychological phenomenon of sellers’ remorse, it could potentially act as support again.
In late May, many traders and investors sold their DKS shares around the $187 level. However, shortly after their sale, the stock price surged. This shift in momentum caused some of these sellers to regret their decision, realizing they might have sold too early. As a result, these remorseful sellers were inclined to buy back their shares, but only if they could acquire them at or below their initial selling price.
When the stock dipped back down to $187 in early August, these remorseful sellers placed buy orders, creating a surge in demand at that specific price point. This collective effort from numerous buyers re-established the $187 level as a support area, a pattern often observed in the stock market.
If DKS stock were to retest this support level again, the same dynamic could potentially play out. Those who sold their shares in early August might try to buy back in, leading to renewed demand and potentially putting a floor under the price.
The chart also reveals a familiar pattern: a rally after the stock reached support. This is driven by another psychological aspect of the market—anxious buyers. Some of the traders and investors who created the support by placing buy orders become apprehensive that they’ll be outbid by other buyers. They are aware that sellers will favor the highest bidder, and they don’t want to miss out on a potential price surge. To avoid this, they raise their bid prices, prompting other anxious buyers to do the same, resulting in a bidding war that propels the price upward.
The most astute traders understand the profound impact of psychology in the markets. They recognize that support levels can hold firm due to remorseful sellers and that anxious buyers can drive a stock’s rally. Leveraging this understanding can lead to profitable trading opportunities.
