Electric vehicle companies NIO Inc. (NYSE: NIO), Tesla, Inc. (NASDAQ: TSLA), and Nikola Corporation (NASDAQ: NKLA) are all trading close to support. This means there is a good chance they rally.
Support is a concentration of buyers who have gathered at the same price level. At support levels, there is more demand for the stock than there is supply. Sellers can sell all they need to with no fear of pushing the price lower.
Downtrends end when they reach support levels.
Sometimes, stocks rally after they fall to support. This happens when some of the market participants decide to pay higher prices. These investors think the large buyers who created the support will eventually drive the stock higher. They want to get ahead of them.
Nio has held support around the $35 level. It also reached this level in early and mid-March. Both times, a small rebound followed and that could happen again.
Tesla has held support around the $700 level. There is support at $700 because it was a resistance level and levels that were resistance can turn into support.
This happens because many of the investors who sold their shares at $700 believe they made a mistake when the shares traded higher afterward. A number of these investors decide to buy the stock back, but they will only do so if they can get it for the same price they sold at.
As a result, buy orders are placed at a level that had been resistance, which will create support. If there are enough of these buy orders, the level will turn into a support level. That’s the case here.
Shares of Nikola have come full circle.
Last April, they were trading around $10 and soared to more than $90 in June. Since then, the stock has trended lower and is trading at $10 once again.
There’s support at $10 because investors like to place their orders at even numbers. After the steep decline, there’s a chance shares stage some type of rebound.
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