Experts are predicting that Hurricane Milton will cause historic devastation in Florida. Large parts of the state are being evacuated. It could result in dire consequences for the travel industry.
However, Carnival Corporation & plc's (NYSE:CCL) stock has not been negatively impacted and is in rally mode. This is why our team of trading experts has made it our Stock of the Day.
The chart of Carnival illustrates some important market principles. First, it shows that stocks tend to rally after they reach support levels. This happens due to anxious buyers.
Some of the traders and investors who created the support with their buy orders worry that others will outbid them. They know that the sellers will go to whoever is willing to pay the highest price and they are concerned that they will miss the trade.
As a result, they increase the prices they are willing to pay. Other anxious buyers see this and do the same. This results in a bidding war that forces the shares into an uptrend.
Read Also: Carnival Posts Strong Q3 Earnings, Analysts Suspect 'Some Conservatism Built Into Q4 Guidance'
The chart also shows that stocks tend to sell off after they reach resistance levels. This occurs for the opposite reason. It is because of anxious sellers.
They are afraid other sellers will undercut them. They know that the buyers will go to whoever is willing to sell at the lowest price and don't want to miss out on their trade.
As a result, they reduce the prices at which they are willing to sell. Other concerned sellers see this and do the same. This can result in a snowball effect that pushes the stock into a downtrend.
The best traders don't guess. They let the market tell them what to do and understand that most price moves occur because of market psychology.
They know that when a stock drops to a support level, anxious buyers may push the price higher. They also know that when stocks reach resistance levels, anxious sellers may push the price lower.
This knowledge can result in low-risk trading opportunities.
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