Stock Of The Day: Carvana Reverses At Resistance, Traders Watch For Next Bounce

Shares of Carvana Co. CVNA have reversed and are trading lower Friday. This follows Wednesday’s rally of more than 10%, which was driven by a positive earnings report.

It wasn't a coincidence that the stock reversed where it did. There is also a good chance that if it continues to trade lower, it will find support around the $259 level. This is why it is our Stock of the Day.

You can see on the chart that Carvana ran into resistance around the $289 level. There was resistance at this level because it was resistance in February. Price levels that had previously been resistance can become so again.

This is a common occurrence in the markets.

It happened because some of the people who bought shares for around $289 regretted their decision to do so when the price fell. Many vowed to get out without losing money if they could eventually do so.

When the price returned to this level, these remorseful buyers placed sell orders. There were so many of them that it created resistance at the same price that had previously been resistance.

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The stock then sold off of the resistance because some of the sellers became worried that other sellers would undercut them. They knew the buyers would go to whoever was willing to sell at the lowest price.

As a result, these worried sellers reduced their offering prices. Other worried sellers saw this and did the same. The result was a snowball effect that pushed the price lower.

If the downtrend continues, there is a good chance that it ends around $259. This level has been resistance, and there tends to be support at prices that had previously been resistance.

This occurs because of seller remorse.

Some of the people who sold their shares at this price decided they made a mistake when the resistance broke and the stock moved above it. Many decided that if possible, they would buy their shares back if they could get them at their selling price.

This means if Carvana returns to this level, these remorseful sellers will place buy orders. If there are enough of these orders, it will create support.

Successful traders can identify important price levels. This gives them logical places to place their orders and enhance their profitability.

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