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CVS Health Corporation (NYSE:CVS) is trading higher on Tuesday. This follows yesterday's sell-off of almost 5%. The drop was caused by news that Congress launched an investigation into the company over concerns that HIPAA privacy laws were violated.
But the shares may reverse and head higher. This is why CVS is the Stock of the Day.
CVS is building positive momentum. Check the fundamentals here.
As you can see on the chart, it found support and bottomed close to $70 yesterday. This wasn't a coincidence. There was support at this price because it had previously been a resistance level.
Stocks finding support at prices that have been resistance is a common occurrence. It happens when some traders and investors who sold their shares at resistance come to regret doing so when the level breaks and price moves higher.
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Many of these remorseful sellers vow to buy their shares back. But they also decide that they will only do so if they can purchase them at the same price they were sold.
As a result, if the stock drops back to the price that had been resistance, they place buy orders. If there is a significant quantity of these orders, it will cause support to form.
The $70 level was resistance for CVS in April, May and July. This is why it was support yesterday.
Sometimes stocks reverse and rally after reaching support, and that may end up being the case here.
Support is a large group of traders and investors who are looking to buy shares at, or close to, the same price. Sometimes, some of these traders become concerned that others who wish to buy shares will increase the prices they are willing to pay.
They know that this is where the sellers will go.
So, they increase their bid prices. Other concerned traders see this and do the same thing.
This could result in a biffing war and a snowball effect that could force CVS into a new uptrend.
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Posted In: CVS
