Shares of Amazon.com, Inc. (NASDAQ:AMZN) are down sharply Friday. The company reported earnings and investors were not impressed. But the shares may have found a bottom. As you can see on the chart, they are at a level that has been support before. This is why Amazon is the Stock of the Day.
In financial markets, support levels tend to stay intact for extended periods. This dynamic stems from investor and trader psychology.
When a stock rallies off a support level, many people who sold shares at that level regret it. They experience sellers’ remorse.
Many decide that, if and when they can, they will buy their shares back at the same price they sold them for. This means if the shares drop back to the support level, they will place buy orders.
If there is a large enough quantity of these orders, it will create support at the level again.
You can see on the chart that the $225 level was support in June. When Amazon rallied, some people who sold around that level came to regret it.
Some of them decided to repurchase their shares if they could do so at their selling price. When the shares dropped back to $225 in late July, they entered the market as buyers.
Their buying created support at the same price that had previously been support.
Now Amazon has dropped back to this important level, and a similar dynamic may play out. Remorseful sellers trying to buy their shares back could create support and put a floor under the price.
This could be the bottom for Amazon. A reversal and rally may even occur, as the shares have done so after the last two times they reached $225.
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