Shares of Honeywell International Inc. (NASDAQ:HON) are trading sideways on Thursday. But a new uptrend may be forming. The shares may have reversed off a support level. This is why Honeywell is the Stock of the Day.
Stocks tend to reverse and rally after reaching support. Support is a price level at which there is a large number of buyers for a stock.
Sometimes, some of the buyers who created the support become anxious and impatient. They become concerned that other buyers will be willing to pay more.
They know the sellers will go to whoever is willing to pay the highest price. As a result, they increase their bid prices. Other anxious buyers see this and do the same thing.
This can create a snowball effect that forces the shares into an uptrend.
There is a reason for the support around the $215 level for Honeywell. It isn’t a coincidence.
As you can see on the chart, this level has been important since September. It has been both a resistance and a support level.
Seller’s remorse can convert resistance into support. People who sell at resistance regret it when the resistance breaks and the shares move higher.
A number of these disappointed sellers decide to repurchase their shares if they can buy them at their selling price.
If and when the shares drop back to the prior resistance level, they place buy orders. If there is a large quantity of them, it can create support.
Seller’s remorse can also keep support intact.
Some of the people who sold at the support level regret doing so when the shares rally. A number of them decided to buy their shares back…if they can get them for their sell price.
As a result, when the shares drop back to the support level, they place buy orders. If there are enough of them, it will form support.
Good traders know how to identify important price levels. This is one of the reasons they are successful.
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