Question

The price of a stock fluctuates between $43 and $60. If the time frame referenced encompasses the primary trend, the $43 price may be considered the ________.

1) Support level
2) Resistance level
3) Breakout level
4) Trend reversal level

Answer 1

In the context of stock price fluctuations, the $43 price level would represent the support level, which is where significant buying interest typically prevents the stock price from declining further.

Step-by-step explanation:

When the price of a stock fluctuates between two values, technical analysts refer to these values as levels of support and resistance. The lower end of the price range, in this case, $43, would be considered the support level.

The support level is a price point where significant buying interest is anticipated that it prevents the price from declining further. Conversely, the resistance level is an upper range price point where selling pressure may be strong enough to keep the price from rising higher.

If the stock breaks through the support or resistance level, it is known as a breakout, which can signal a continuation of the current trend or the start of a new trend. Reversals occur when the price changes direction from an uptrend to downtrend or vice versa and these levels can become indicators for trend reversals.

Thus, given the choices and the specified prices, $43 would represent the support level, aligning with option 1).