Tesla, Inc. (NASDAQ:TSLA) shares are trading lower on Monday. They have been in a downtrend, and there's a good chance this trend continues.
An important support level may have broken and this could be a bearish dynamic, making Tesla the Stock of the Day.
• Tesla shares are retreating from recent levels. What’s pressuring TSLA stock?
If a stock is trending lower, it is out of equilibrium. There is more supply than demand. Traders and investors who wish to sell shares are forced to undercut each other's prices to draw in buyers.
This results in a downtrend.
But when the stock gets to a support level, the picture changes. There is enough demand, or buy orders, to absorb all of the supply or sell orders. Sellers are no longer forced to undercut each other, and this halts the downtrend.
Sometimes stocks rally after they reach support levels. This happens when some of the traders and investors who created the support with their buy orders become anxious and impatient. They know buyers will go to whoever will pay the highest price.
These anxious and impatient buyers raise their bid prices. Others see this and do the same thing.
This could result in a snowball effect or a bidding war that can force the shares into an uptrend.
But sometimes when a stock reaches support, the sellers eventually overpower the buyers. The support “breaks,” meaning the stock gets and stays below what has been the support level.
This is a bearish dynamic. It shows that the people who created the support with their buy orders are gone. They have either finished or canceled their orders.
With this demand out of the market, those who wish to sell will be forced to undercut each other again to draw buyers back in.
This can force the price lower. A new downtrend may be forming in Tesla.
Courtesy: Ken Wolter on Shutterstock
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