When there is a significant volume of trading at a specific price in the stock market, that price gains significance. Numerous traders and investors transact at that level, hence if the stock’s trend reverses, gravitating back to that price, it captures widespread interest.
In contrast, if a stock traverses levels with minimal trading activity and retraces its steps, returning from the opposite direction, the lack of trading interest becomes apparent. This scenario epitomizes the current narrative surrounding NVIDIA Corp’s stock, symbolized by the ticker NVDA, as today’s Stock of the Day.
The focal point lies in the potential occurrence of “refilling a gap.”
Visualized as a “gap” on a chart, the phenomenon arises when a stock concludes trading at one price and commences the next session at a disparate price, devoid of any trading activity between these points.
As observed on May 22, NVIDIA closed at $94.94 and then opened the following day at $102.02 with no trading transactions transpiring within this price span.
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The concept of support in the market often stems from seller’s remorse. Individuals may sell their holdings only to regret the decision amid subsequent price hikes. This remorse prompts them to repurchase their shares, ideally at the earlier sale price, fueling support levels.
Following a substantial upward movement, NVIDIA shares have retraced their steps and are now nearing the price points where the initial gap occurred. Should the stock retreat into this range, the likelihood of limited buyer interest looms large.
In such a scenario, rapid price drops could ensue as sellers struggle to secure buyers, compelling them to drive prices lower to entice prospective buyers.
The plethora of adages that flourish on Wall Street includes some that hold water and others that do not. The axiom “gaps refill” belongs to the former category, encapsulating NVIDIA’s potential for an impending swift descent.
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