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Shares of The Charles Schwab Corporation (NYSE:SCHW) are getting close to a support level. And stocks that drop to support levels tend to rally.
This is why it's our Stock of the Day. As you can see on the chart, there has been well-defined support for Charles Schwab since January. Each time the price fell to $62, a move higher followed.
Some price levels in financial markets are more important than others. They are called support and resistance levels.
If a stock is trending lower, it is out of equilibrium. There isn't enough demand to absorb all of the supply. There are more shares for sale than there are to buy.
As a result, the price trends lower.
When the shares reach a support level, the tide turns. There is more than enough demand to absorb all of the supply. The price stops moving lower.
Investors and traders can sell all that they want to. They don't need to worry about pushing the price down.
Sometimes, stocks rally after they reach support. This is what happened with shares of SCHW each time it reached levels around $62.00 since January.
Support is a large concentration of people who are trying to buy shares at or close to the same price.
When some of these traders and investors notice that the shares are not trending lower anymore, they realize there is a large number of others trying to buy. They become concerned that some of these other buyers may outbid them.
They know that the sellers will go to whoever is willing to pay the highest price.
As a result of this, they increase the prices they are willing to pay. Other concerned buyers see this and do the same.
This action could end up causing a bidding war between these buyers. This can push the price higher and force the stock into a new uptrend.
If shares of SCHW reach the $62.00 level, there is a good chance that they reverse and rally.
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Posted In: SCHW
