Stock Of The Day: Carnival Finds Support Amid Summer Travel Hopes

Shares of Carnival Corporation & plc CCL are trading lower Friday. This is despite analyst predictions of strong summer bookings.

That’s why it’s Benzinga’s Stock of the Day. It looks like the shares may find support and reverse and move higher.

The chart of Carnival illustrates two important market principles.

The first is that price levels that had been support can turn into resistance levels. In December the $23.30 level was support. In May it became a resistance level.

Support can turn into resistance because of buyer remorse. Many of the people who purchased shares while they were at support decided they made a mistake when the support broke, and the price moved lower.

Some of them decided that if they could eventually sell their shares at breakeven, they would. So when the stock finally rallied back to $23.30 in May, they placed sell orders. A large number of these orders created resistance at the price that had been supporting.

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The second principle shown on the chart is how a price that has been resistance can turn into support. This is what happened with the $21.50 level. It was resistance in March and now it has become support.

Resistance can become support because of seller remorse.

Some of the traders and investors who sold shares at the resistance in March came to regret their decisions to do so when the resistance broke and the stock moved higher. Many of them vowed to buy their shares back if they could eventually get them for the same price they were sold at.

As a result, now that the shares have dropped back to around $21.50, these remorseful sellers are placing buy orders. The large amount of these orders has formed support at the level.

Successful traders let the market tell them what to do.

If a stock is trading higher, they may use a former support level as their target because they know there is a good chance there will be resistance there. If a stock is trending lower, they may decide to buy it at a price that has been resistance because they know there is a good chance there will be support at that zone.

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