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Moderna, Inc. (NASDAQ:MRNA) shares are getting hit because of a bad earnings report. The Street didn't like the numbers.
The shares have broken a support level and may form a new downtrend. This is why Moderna is our Stock of the Day.
If a stock is trending lower, there is more supply than demand. There aren't enough buy orders to absorb all of the sell orders. The market is out of equilibrium.
If the stock reaches support, the dynamics change. There is enough demand to absorb the supply. For every sell order, there is a buy order. This is why selloffs halt or at least pause at support levels.
Sometimes stocks reverse and rally after they reach support. As you can see on the chart, this is what happened with Moderna in early July.
Rallying off of support is a common occurrence in the stock market.
Support is a large group or concentration of buyers looking to pay the same, or close to the same price for shares. The support for Moderna was at the $115.00 level.
When a stock falls to support, some traders and investors who created the support with their buy orders become concerned. They see the stock has stopped moving lower, so they think new buyers are entering the market.
They know that the sellers will go to whoever will pay the highest price. They don't want to miss the trade, so they increase their bid prices.
Other concerned buyers see this and do the same. This results in a snowball effect or a bidding war that pushes the price higher.
But sometimes the support “breaks.” This means the stock price falls below the support level. And as you can see on the chart, the Moderna news has caused the support at $115.00 to break.
This illustrates an important trading dynamic. It shows that the investors and traders who created the support with their buy orders have left the market. They either canceled or finished their orders.
This creates a problem for people who wish to sell. They will have a hard time finding someone to buy their shares.
As a result, the sellers will need to be aggressive. They will offer their shares at a discount to draw buyers off of the sidelines. This type of action can force the shares into a downtrend.
Shares of Moderna may be about to head lower.
MRNA Price Action: Moderna shares are down 20.86% at $94.36 at publication Thursday.
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Photo: Lutsenko_Oleksandr on Shutterstock
Posted In: MRNA
