Workday, Inc. WDAY is trading higher Monday. The downtrend that began in May could be turning.

The trading here illustrates an essential principle of the financial markets. This is why our team of technical analysts has made it our Stock of the Day.

In the markets, certain price levels have more importance than others. These are referred to as support and resistance levels.

There are large amounts of demand, or buy orders, at or close to support levels. This is why selloffs end when they reach them. There are enough buy orders to absorb all the sell orders.

The sellers don't need to force the price lower to find buyers.

Resistance is the opposite of support. At these levels, there are large amounts of supply or shares for sale. This is why market rallies end at them. There are enough sell orders to fill all the buy orders.

Buyers don't need to push the price higher to find sellers.

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Sometimes, a significant support or resistance level can remain intact for an extended period. It could be weeks, months, or even years.

As you can see on the chart below, the $206 level in Workday has been important for more than two years.

It was resistance in April 2023. When this resistance broke and the price moved higher, some of the traders and investors who sold experienced seller's remorse and decided to repurchase their shares if they could do so at their selling price.

So, when the price dropped back to this level in October 2023, they placed buy orders. The large concentration of these buy orders converted what had been a resistance level into a support level.

This support has remained intact since.

The last five times Workday dropped to this price, a reversal and rally followed. Stocks can rally off support when impatient buyers outbid each other. They know the sellers will go to whoever is willing to pay the highest, and their bidding war can force the stock into an uptrend.

It may be about to happen once again for Workday.

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