Oracle Corporation (NYSE:ORCL) shares are trading higher on Thursday. The shares rallied more than 10% on Wednesday after the company set new targets for revenue and cash flow growth.
The price action of the shares illustrates an important market dynamic that savvy traders use to profit. This is why Oracle is the Stock of the Day.
When stocks reach support levels, there is a good chance the downtrend ends or at least pauses. There’s also a chance they reverse and rally.
As you can see on the chart, Oracle has rallied off support around the $120 level.
Support is a price or narrow price range where demand for a stock is high. In other words, there are many buy orders.
If a stock is in a downtrend, it is because demand isn’t enough to absorb all the supply. There are more sell orders than buy orders.
The result of this is that investors and traders who wish to sell are forced to undercut each other and offer their shares at a discount. This is the only way they can attract buyers.
It forces the shares into a downtrend.
Downtrends end when they reach support because the supply and demand dynamics change. There are enough buy orders to fill all of the sell orders.
Sellers can sell all they wish without having to force the price any lower.
Sometimes stocks rally after they reach support. This is what has happened with Oracle over the past two days.
Shares rally off support when some of the buyers who created it grow impatient and anxious. They increase their bid prices.
A snowball effect forces the shares into an uptrend as other impatient buyers do the same.
Successful traders let the market tell them what to do. They know how to identify important support levels. This allows them to anticipate when downtrends will reverse.
ORCL Stock Price Activity: Oracle shares are trading lower by 4.04% at $138.71 at the time of publication on Thursday, according to Benzinga Pro data.
Photo: JRdes / Shutterstock
