AppLovin Corporation (NASDAQ:APP) shares are consolidating on Wednesday. This comes after yesterday’s drop of almost 8%.
• What’s driving APP stock today?
Traders are watching AppLovin closely for a possible reversal and move higher. This is why it is the Stock of the Day.
Resistance in a market is a price or range where there are large amounts of shares for sale. If a market is trending higher, there aren’t enough sell orders to fill all of the buy orders. Buyers need to outbid each other to draw sellers in.
This pushes the price higher.
Sometimes stocks reverse and move lower after reaching resistance. But at other times, the buyers overpower the sellers. The resistance “breaks” and the price moves higher.
This is considered a bullish dynamic because it shows the sellers who created the resistance are out of the market.
Stocks can appear to break resistance, but then quickly reverse and give back all their gains. They can even end up back below the resistance. Traders call this a “false breakout.”
There is a dynamic that successful traders look for when trying to decide if a move higher will continue or if it will be a false breakout.
If the price level that had been resistance converts into a support level, there is a good chance the stage is being set for a move higher in the stock.
This is seen on the AppLovin chart.
In August, after the resistance around $466 was broken, a small move higher and reversion followed. As you can see, the resistance converted into support and this set the stage for a move up.
This happened because some of the people who sold their shares at the resistance regretted it when the resistance broke. A number decided to buy their shares back at their selling price if possible.
So when the stock returned to $466, they placed buy orders. This converted the level and set the stage for a move higher.
Now AppLovin has fallen back to the former resistance level. If it turns into support, another bullish move may follow.
Photo: Poetra.RH / Shutterstock
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