In the world of finance, certain price levels exhibit a fascinating dynamic that can be observed through the charts of companies like Aaron’s Holdings Company, Inc. (AAN). These price levels, once considered support or resistance, often undergo a transformation, leading to what is commonly known as “gap refilling.” This phenomenon can be attributed to buyer’s and seller’s remorse, as well as the absence of trading activity within a specific price range.
Support levels, which previously acted as a foundation for the stock’s price, can convert into resistance levels due to buyer’s remorse. When individuals purchase shares and witness a subsequent decline below their entry price, they may decide to exit the position when the stock rallies back to their initial buy price. Consequently, sell orders are placed at this level, creating resistance. This pattern is evident in the chart of AAN, where the $11.80 level served as support in August 2023 and later transformed into resistance in December of the same year.
Conversely, resistance levels can turn into support levels due to seller’s remorse. Investors and traders who regret selling their shares at a particular price may vow to repurchase them if the stock reaches the same level. Consequently, buy orders are placed at the previous resistance level, effectively turning it into support. The chart of AAN demonstrates this phenomenon, as $10.80 acted as resistance in September 2023 and subsequently became support in January of the following year.
The concept of “gaps” further contributes to the dynamic of price levels. A gap occurs when a stock closes at one price and opens the next day at a different price, with no trading activity in between. This absence of buyers or sellers within the gap range eliminates remorseful buyers or sellers seeking to buy or sell their shares at those levels. Consequently, if a stock gaps through certain price levels and later reverses, there is a tendency for it to rapidly move back through those levels due to the lack of buy or sell interest. This process is commonly referred to as “gap refilling.”
Examining the chart of AAN, we can observe instances of gap refilling. In April 2023, the stock gapped from $10.22 to $12.25, and by August of the same year, the gap was filled. Similarly, in October 2023, AAN experienced a gap down from $8.89 to $7.28, which was subsequently refilled in November.