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Markets are driven by emotions and psychology. They are what makes patterns form on charts.
Over the past few days, shares of Zscaler, Inc. (NASDAQ:ZS) have been in meltdown mode. They have dropped by more than 20% in just a few days. This is why it's our Stock of the Day.
As you can see on the chart, the sell-off paused or maybe even ended right around $156.50. This is the same level that it found support at in late May and early August.
This is not a coincidence. There can be support at price levels that was support before. This is a common occurrence in markets. It is an example of investor and trader psychology manifested on the charts.
Some of the people who sold while the shares were at support regret their decision to do so when the price headed higher soon after. A number of these remorseful sellers will buy their shares back.
But they will only do so if they can buy them at the same price they had sold them. As a result, when the shares eventually reverse and return to the level that was support, they place buy orders.
If there are enough of these orders, it will create support at the level that was support before. This is what happened with Zscaler.
As you can also see on the chart, the last two times Zscaler dropped to this support a rally followed. Stocks rallying off of support is another common occurrence in the market.
This happens when some buyers start to worry that they will miss out. They think that other buyers will increase the prices they are willing to pay. People looking to sell will go to whoever is willing to pay the highest price.
So, these worried buyers increase their bids. Others see this and do the same thing. As a result, a bidding war breaks out. This moves the price higher.
This is what happened the last two times Zscaler reached this support. It may be about to do so again.
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Posted In: ZS
