Stock of the Day: Is Palantir Breaking Support?

Shares of Palantir Technologies Inc. (NASDAQ:PLTR) fell by more than 6% Friday. The company reports its earnings on Monday. But many analysts attribute the move to the broad market selloff as the S&P 500 Technology Sector dropped almost 5%.

Palantir is the Stock of the Day.

In the financial markets, some price levels are important and some are not. These important levels are called support and resistance.

Support is a level where there is a large amount of demand, or buy orders, for a stock. Downtrends end when they reach support.

Resistance is a level where there is a large amount or supply, or sell orders, for a stock. Rallies end when they reach resistance.

As you can see on the chart, the $186 level was resistance for Palantir in August. Then it became a support level in October.

Resistance levels converting into support levels is a common occurrence in financial markets. It is the result of remorseful or regretful sellers.

These are people who sold their shares at the resistance who come to regret doing so when it breaks and the price heads higher. Some of them decide that if and when they eventually could, they would repurchase their shares for the same price they were sold at.

When Palantir dropped back to $186, they placed buy orders. The large quantity of these orders created support at the price that had been resistance.

Now this support appears to be breaking.

Breaks of support tend to be followed by moves lower. This is because support breaking is a graphical illustration of demand or buyers leaving a market.

With the buyers gone, sellers will be forced to offer their shares at a discount to get buyers interested. This can force the shares into a downtrend.

In the financial markets, certain price levels have more importance than others. Traders who can identify these levels will profit.