Shares of Cisco Systems, Inc. (NASDAQ:CSCO) are trading lower on Thursday. The downtrend may just be getting started, with the stock potentially headed to fill a gap. This is why Cisco is our Stock of the Day.
In the stock market, support is a price or narrow price range where there is a large amount of demand for the shares. There are more shares to be bought than to be sold. This is why selloffs end or pause at support levels.
Traders and investors who wish to sell can do so without pushing the price lower.
Sometimes support forms as a result of seller's remorse. This can be seen on Cisco’s chart. See below.
Cisco: Can Sellers Draw Buyers Into The Market?
In October, there was resistance around $73.25. When this resistance was broken, and the price went higher, many of the people who sold regretted doing so. A number of them decided to buy their shares back if they could repurchase them for the same price they were sold for.
This buying created support at the level.
A similar dynamic occurred at $87. It was resistance in February, and then it converted to support in April.
As you can see on the chart, Cisco recently gapped up from around $102 to around $114. When a stock moves rapidly through price levels, it appears as a blank space or a ‘gap' on a chart.
Because there was little or no trading between these two levels, there were only a small number of sellers. This means if the shares get back into these levels going in the opposite direction, there may not be a large number of buy orders.
Sellers may need to force the price down to draw buyers into the market. This could result in a rapid move lower. Cisco may be about to ‘fill the gap'.
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