Microsoft Corporation (NASDAQ:MSFT) shares are trading higher on Thursday and are at a critical level. If the shares can hold current support, they could start to work higher.
But if the support breaks, a new downtrend may form.
That is why Microsoft is the Stock of the Day.
• What’s going on with MSFT stock today?
As you can see on the chart, after selling off, Microsoft has found support around $445. This isn’t a coincidence. There is support at this price because it had previously been resistance.
Resistance levels convert into resistance frequently in markets. This is a result of investor and trader psychology. It is due to remorseful and regretful sellers.
These are people who sold last January for around $445. At first, they thought they had made a good decision when the price dropped.
But in May, Microsoft headed higher and broke through this resistance. When this happened, many of these previously happy sellers decided that their decision to sell was a mistake. They experienced sellers’ remorse.
A number of these investors and traders decided that if and when they could eventually do so, they would buy their shares back for the same price they were sold.
So, when the stock dropped back to around $445, they placed buy orders. The large quantity of these orders made support form at the level.
Support and resistance levels are like forks in the road. When a stock gets to one of these important levels, they tend not to stay at them for too long. They either reverse or break the level.
Successful traders don’t “catch the falling knife.” In other words, they don’t buy a stock just because it is down. They know that it could keep going lower.
These traders wait for a reversal and move higher to begin before they actually jump in and buy. They know they won’t get the absolute lowest price, but they also know the odds will be more in their favor if they wait for the anticipated move to begin.