Stock of the Day: Is This the Bottom for SanDisk?

SanDisk Corp (NASDAQ:SNDK) shares fell 6.4% to about $1,077 Monday, slipping below $1,100. The decline followed a drop of more than 10% Friday after the company reported earnings.

Still, the stock may be close to a bottom. This is why SanDisk is the Stock of the Day.

As you can see on the chart, the area between $1,000 and $1,100 has been a support zone for SanDisk. Support is a large amount of demand or buy orders for a stock at, or close to, a certain price.

The shares were in a downtrend in July. There were more shares for sale than there were to be bought. This forced traders and investors who wish to sell to offer their shares at a discount and undercut each other’s prices.

This created the downtrend.

But the dynamic changed when the stock reached that zone in late July. The buyers came out of the woodwork. Sellers could sell all they needed to without pushing the price any lower.

After this, a rally occurred.

Stocks rally off support when some of the buyers who created the support become anxious and impatient. They worry that other buyers will be willing to pay higher prices, and they know this is who the sellers will go to.

They don’t want to miss the trade, so they increase their bid prices. Other anxious buyers see this and they increase their bid prices too.

This creates a snowball effect that forces the shares into an uptrend.

When SanDisk rallied in August, many of the people who sold between $1,000 and $1,100 decided doing so was a mistake. Some of them also decided to buy their shares back if they could eventually get them for the same price they were sold at.

Now that the shares have returned to this zone, some of those buyers may place orders. If enough of them do, that demand could form support again.

Support is a zone, not an exact price. A stock can trade below a round number like $1,100 before buyers step in. That happened in late July, when SanDisk dipped below $1,000 during the session before rebounding.

If the shares hold above the late-July low near $1,000, the bottom thesis remains intact. A sustained break below that level would suggest the downtrend has further to run.

Successful traders understand psychology. They know seller’s remorse can create support at levels that were support previously. This helps them identify where a downtrend may end.

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