Qualcomm Incorporated (NASDAQ:QCOM) shares are trading lower on Tuesday. After a parabolic rally that left them extremely overbought, they have finally reversed. Now traders are looking for levels that may provide support. This is why we have made Qualcomm the Stock of the Day.
A stock that is going down will eventually reverse and go back up. This reversal could take place at any price level.
But the odds are greater that it will happen at support and not a random level.
In the financial markets, there is a tendency for there to be support at price levels that have previously been resistance. This is a common occurrence.
It is a result of investor and trader psychology. It is due to remorseful sellers.
These are investors and traders who were initially happy when the price declined after they made their sale. But when the resistance breaks and the price moves higher, many of these previously happy sellers come to think their decision to sell was actually a mistake.
A number of them make the decision to buy their shares back. But they will only do so if they can buy them back at the same prices they had sold them for.
As a result, if the stock does fall back to what had been resistance they place buy orders. If there is a sufficient quantity of these orders, it will create support at the same price.
You can see on the chart that $221, $205, and $183.50 have been resistance levels for QUALCOMM. This means that as the stock heads lower, these are levels where there could be support.
If $221 breaks, there is a good chance $205 is the next stop. If $205 breaks, $183.50 could be the next potential support.
Successful traders know it's impossible to identify a bottom. Instead, they play the odds. They identify potential reversal points.
If the shares do reverse at these levels, they jump in. If not, they patiently wait for the next possible reversal point.
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