Micron Technology (MU) continued its upward trajectory on Thursday, following the release of positive quarterly results. For savvy traders, understanding support and resistance levels is crucial. These levels act as key indicators, defining where price movements are likely to pause or reverse.
In Micron’s case, the $108.80 level is a prominent example. It’s been acting as both support and resistance since March. This makes Micron’s stock particularly interesting and is why we’ve selected it as our Stock of the Day.
Let’s break down the concepts of support and resistance.
Support
represents a price level where demand outweighs supply. When a stock is trending lower, sellers need to offer their shares at a discount to attract buyers. This downward pressure continues until the price reaches support. At this point, enough buyers step in to absorb the available supply, preventing further decline.Resistance
is the opposite. It marks a level where supply outpaces demand. When a stock is trending higher, buyers need to pay a premium to entice sellers. This upward pressure persists until the stock hits resistance. At this point, enough sellers emerge to satisfy the demand, halting the price increase.The Shift from Support to Resistance (and Vice Versa)
It’s common for price levels that were previously support to transform into resistance and vice versa. This dynamic can be attributed to what’s known as buyer’s remorse and seller’s remorse.
Buyer’s Remorse
occurs when investors, having bought shares at a support level, experience a change of heart after seeing the price rally. They might fear missing out on further gains or worry about losing their profits if the price drops. This can lead them to sell their shares if the price returns to the original support level, turning it into a resistance level.Seller’s Remorse
, conversely, happens when investors who sold their shares at a resistance level see the price rise. They may regret their decision and want to buy their shares back, especially if the price returns to the original resistance level. This can transform the resistance level into support.The stock chart of Micron Technology serves as a clear illustration of how support and resistance levels can be dynamic, influencing price movements. By understanding these concepts and observing their interplay, traders can gain valuable insights into potential future price action.
