Shares of Oracle Corporation (NYSE:ORCL) continue to move higher in pre-market trading on Tuesday, reversing yesterday’s pullback off a support level. This is why Oracle is the Stock of the Day.
In January and early February, Oracle was in a downtrend. There were more shares to be sold than there were to buy.
This forced traders and investors who wished to sell to undercut each other's prices. This caused the downtrend.
When the stock got to around $138.50, the tide turned. For some reason, no one can really be sure why, but this is where the buyers came out of the woodwork. Those who wished to sell could do so without fear of driving the price any lower.
The shares bounced, but they soon dropped back to $138.50, and the level provided support again. This time, it was easy to understand why there was support around this price.
Some of the people who sold shares at around $138.50 later decided their decision was a mistake when the price rallied. A number of these people also decided that if and when Oracle dropped back to around $138.50, they would buy back their shares.
The large quantity of these buy orders formed support at the level again.
A similar dynamic occurred in late March. Some who regretted selling around the support in late February repurchased their shares in late March and early April. This created support again.
Now Oracle has reversed off this level.
Stocks rally off support when some of the buyers who created the support become anxious and impatient. They are worried that other people who wish to buy may increase the prices they are willing to pay. They know the sellers will go to whoever is willing to pay the most.
As a result, they increase their bid prices. Other anxious and impatient buyers see this and do the same. The snowball effect that results moves the price higher.
Successful traders know how to identify key levels in the market. These tend to be where trends change, and profits follow.
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