The Expected Price at Support Level for Stocks

C

The support level can be thought of as a temporary floor on the stock price in the sense that if the price falls below this level, additional demand will shore up the price.

The support level of a stock refers to a specific price level at which the stock's price has historically shown resistance to falling further. It is a concept commonly used in technical analysis, which is a method of evaluating stocks based on historical price and volume data.

The correct answer is C. a substantial demand for the stock.

When the stock's price reaches the support level, technical analysts expect that there will be a significant number of buyers willing to purchase the stock at that price. This demand creates a floor or support for the stock's price, preventing it from declining further. The support level is considered an area of strong buying interest because it represents a price level where investors believe the stock is undervalued or attractive.

By identifying and analyzing support levels, technicians aim to predict potential price reversals or areas where the stock's price is likely to bounce back from a decline. They use various charting techniques and indicators to identify support levels, such as trendlines, moving averages, or previous price lows.

Option A, "a substantial supply of the stock," is incorrect because the support level is associated with demand, not supply. When the stock price reaches the support level, it indicates that buyers are stepping in to purchase the stock, not that there is an excess supply available.

Option B, "the stock price to break out of the rising trend channel," is incorrect. A rising trend channel typically represents an upward price trend where the stock's price moves between an ascending support line and an ascending resistance line. The support level, in this case, is the lower boundary of the rising trend channel. Breaking out of the rising trend channel would involve the stock's price moving above the upper boundary, not necessarily the support level.

Option D, "a stable trading volume," is also incorrect. The support level is primarily concerned with the stock's price and its relationship with demand, rather than the trading volume. While trading volume can be a useful metric in technical analysis, it is not directly related to the concept of support levels.

To summarize, the support level of a stock represents a price level where there is a substantial demand for the stock, creating a floor for the stock's price and preventing further decline. Technical analysts use support levels to identify potential price reversals and areas of buying interest.