CVS Health Corporation (CVS) is trading flat on Wednesday after getting absolutely hammered yesterday. The healthcare giant's shares dropped nearly 15% when news broke that Medicare was proposing rates well below what the market expected. Now comes the interesting part: figuring out where this thing stops falling.
The $70 Question
If the bleeding continues, the shares could find support around $70. They might even rally from there, which is exactly why CVS deserves a closer look today. Understanding why requires a quick primer on how support and resistance levels actually work.
When a stock trends higher, it's because there aren't enough shares for sale to satisfy all the buyers. People start bidding against each other, pushing the price up. This continues until the stock hits a resistance level—a price point where suddenly there are enough sellers to meet demand. Rallies tend to end or pause at resistance.
Support levels work in reverse. When a stock is dropping, there aren't enough buy orders to absorb everyone trying to sell. Sellers undercut each other, driving the price down. The decline stops or pauses when it reaches support, where enough buyers show up to match the selling pressure.
Why $70 Matters for CVS
Here's where it gets fascinating. Price levels in markets have memories. A level that once acted as resistance can flip and become support. Similarly, a level that previously provided support can do so again. The reason? Sellers' remorse.
Think about what happened when CVS traded around $70 before. Some investors sold at that level, then watched in frustration as the stock broke through and climbed higher. Many of those sellers decided they'd buy back in around $70 if they got another chance.
When the stock fell back to $70 in September, those regretful sellers placed buy orders. That buying pressure created support at the same level that had previously been resistance.
After the subsequent rally, more people sold and felt that familiar sting of regret. Some of them are probably waiting right now, ready to buy back around $70 if the opportunity presents itself.
That collective remorse could create support once again. Whether CVS actually finds its bottom here depends on whether enough of those would-be buyers actually pull the trigger. But the setup is there, which makes this level worth watching closely.
