Stock Of The Day: Where Will The Uber Seffoff End?

Shares of Uber Technologies, Inc. UBER are headed lower on Wednesday. The company reported disappointing earnings.

But the stock may soon find a bottom. We have made it our Stock of the Day because there is a good chance that it even reverses and rallies.

One of the main principles that successful traders understand is that certain price levels in the financial markets are more important than others. We call these support and resistance levels.

When a stock is moving higher, it is because there is more demand than supply. In other words, there are more shares to be bought than there are to be sold.

This forces Investors and traders to pay premiums and outbid each other if they wish to purchase shares. This can push the price higher.

When a stock reaches resistance, the picture changes. There are as many — or maybe even more — shares for sale as there are to be bought. This is why rallies either end or pause when they reach resistance.

Sometimes, after moving higher a stock will run into resistance at the same price or level that had previously been resistance. You can see on the chart below this is the case with the $86.60 level for Uber.

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It was resistance in October, and it was resistance over the past week.

This happens because of buyer remorse. Some of the traders who bought shares at the prior peak regretted doing so when the price fell after. They held onto their losing positions, but when the shares finally rallied back to their buy price and they had the chance to get out at breakeven, they sold.

This large group of sell orders formed resistance at the level that had been resistance before.

Sometimes, after moving lower a stock will find support at a price or level that had previously been resistance. This is due to seller’s remorse.

Some of the people who sold UBER around $81.60 in February regretted doing so when the resistance broke and the price moved higher. Many have decided to buy their shares back if they can do so at their selling price.

This means if UBER drops back to $81.60, these remorseful sellers will place buy orders. And if there are enough of them, it will form support.

In the financial markets, buyer’s remorse can keep resistance intact. Seller’s remorse can convert what was resistance into support. Successful traders can profit from understanding these dynamics.

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