Super Micro Computer, Inc. (NASDAQ:SMCI) is trading flat on Tuesday. This comes after yesterday's selloff of more than 18%. The move was because the company missed its earnings estimates.
Savvy traders were able to predict where the selloff ended. This is why Super Micro is our Stock of the Day.
Some analysts believe the market is random. They believe that it isn't predictable and it can't be out-timed. These analysts are wrong and do not understand how the financial markets work.
Markets can be very predictable.
As you can see on the chart, the stock recently found resistance around $62. This wasn't a random coincidence. It is because this level had been resistant in February.
Some of the people who bought shares then regretted doing so when the price fell after. Some of these buyers decided that, if possible, they would eventually sell their shares at breakeven.
So when the price returned to this level, they placed sell orders. The large number of these orders formed resistance at the same price that had previously been a resistance point.
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Stocks frequently find resistance at prices that have previously been resistance. It is predictable.
Yesterday's selloff ended around $46.90. This was also predictable. This price had been a resistance level, and resistance levels can turn into support levels once they are broken and exceeded.
This is because of remorseful sellers.
Some who sold Super Micro around $46.90 in May regretted doing so when the resistance broke and the stock moved higher in late June.
Many of them vowed to buy their shares back if they could eventually get them for the same price they were sold for. Yesterday, when the stock dropped back to this price, they placed buy orders.
The large group of buyers created support at the same price that had been resistance.
Successful traders know that markets are predictable. Super Micro has found a bottom. It may now reverse and trend higher.
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