Shares of DoorDash, Inc. (NASDAQ:DASH) are consolidating on Tuesday. They dropped more than 6% yesterday after the company announced that it is in talks to buy Instacart. As you can see on the chart, DoorDash is testing support. This is why it is the Stock of the Day.
If a stock is in a downtrend, it is because supply exceeds demand. More shares are for sale than there are buyers.
Investors and traders who want to sell are forced to lower prices and offer shares at a discount to attract buyers. This forces the shares into a downtrend.
The dynamic changes when the downtrend reaches a support level.
At these levels, demand is high, or there are many shares to buy. Traders can sell all they wish without pushing the price any lower.
Sometimes shares rally after they reach support. This happens when some of the people who created the support become anxious and impatient.
They know the sellers will go to whoever is willing to pay the highest price. As a result, they raise their bids. Other impatient buyers see this and do the same.
This starts a bidding war that can force the shares into an uptrend.
Sometimes when a stock reaches support, the sellers overpower the buyers and push the price lower. When this happens, traders say the support has been ‘broken’.
Moves lower tend to follow after support breaks. With the demand, or buyers, out of the market, those who wish to sell will be forced to undercut each other. This will put the shares into a new downtrend.
Traders will be watching DoorDash closely. They know that when a stock reaches a support level, it tends not to stay there for too long.
It typically either reverses and rallies, or breaks down and heads lower. These moves will offer opportunities for savvy traders to profit.
