Shares of Salesforce, Inc. (NYSE:CRM) have reversed off of resistance at the $268.60 level. This isn't a surprise. As you can see on the chart below, this level has been important since December.
Some price levels are more important than others. Salesforce clearly illustrates this. This is why it's our Stock of the Day.
In the stock market, important price levels can switch back and forth between support and resistance. There is resistance around $268.60 because it was a support level in April and May. And it was support then because it was resistance in December.
Some of the people who bought Salesforce while it was at support came to think they made a mistake when the shares fell below their buying price. A number of these remorseful buyers decide to sell. But they don't want to lose money.
As a result, when the shares rally back up to their buying price they place sell orders. And if there are enough of these sell orders, it will create resistance like it did here. Support can turn into resistance because of buyer's remorse.
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The reason why the level was support was because it had previously been resistance.
People who sold Salesforce in December thought they had the right idea when the price headed lower soon after. But in January the stock broke this resistance and moved higher. When this happened a number of the people who sold came to regret their decisions to do so.
Many of these remorseful sellers decide to buy their shares back. But they will only do so if they can get them at the same prices they sold them for.
As a result, when the stock dropped back to their selling price they placed buy orders. There were enough of these buy orders to create support at the same level that had been resistance. Seller's remorse can turn resistance into support.
Savvy traders know which price levels are important. They can profit because they understand that when a stock reaches one of these levels, either support or resistance, there's a good chance that it will stage a reversal.
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