Stock of the Day: Where is the Bottom for Global Payments?

Trading in Global Payments Inc. (NYSE:GPN) is quiet on Friday. But that wasn’t the case yesterday. The shares fell 12% after reports that a takeover attempt by private equity firms had been abandoned.

If the selloff continues, the shares may find support around the $81 level. As you can see on the chart, this price has been important for Global Payments. This is why it is the Stock of the Day.

In the financial markets, some price levels matter more than others. These are called support and resistance levels.

At support levels, there is strong demand, or a large number of buy orders. If a stock is trending lower, it’s because there are more shares for sale than there are buyers. People who wish to sell are forced to undercut each other’s prices and offer their shares at a discount.

This creates a downtrend. These downtrends end when they reach support because demand is high enough to absorb all the supply.

At Resistance Levels, There Are Plenty of Sell Orders

If a stock is trending higher, its because there are more shares to be bought than there are for sale. People who wish to buy are forced to outbid each other and pay premiums.

This creates an uptrend. These trends end when they reach resistance because supply is enough to meet all the demand.

Levels that had been resistance can convert into support. This is the result of sellers’ remorse.

People who sold Global Payments around $81 were glad they did when the price dropped after.  But when resistance broke in July, some changed their minds. They decided selling was a mistake.

Some also decided to buy their shares back if they could get them for the same price they were sold for. When the shares sold off and returned to $81, they placed buy orders. These orders created support.

If the stock reaches this important level again, the downtrend may end. A reversal and rally may even follow.

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