Shares of Axon Enterprise ( AXON ), Inc. are trading lower Friday. The stock’s downtrend, which began on Wednesday after a downgrade, continues.

Axon is testing and may be breaking support. It is also trading above price levels that it gapped up through on Nov. 8. If the support breaks, it may fall quickly back through these levels in the opposite direction. This is why it is our Stock of the Day.

One of the main reasons support levels form in markets is psychology, driven by seller's remorse.

People sell their shares only to watch them head higher after doing so. When this happens, many think their decision to sell was a mistake. Many decide to buy their shares back.

But they will only buy back if they can repurchase at the price they sold.

As a result, if and when the stock eventually drops back to the price they sold at, they place buy orders. If there are a large amount of remorseful sellers placing buy orders it can cause support to form.

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As you can see on the chart there has been support for Axon around $540.

On Nov. 8, the shares opened at $540. Trading volume is typically heaviest at the market’s open and close. Many who sold at the open regretted their decision as shares closed above $600.

On Jan. 6 when Axon dropped back to this level, a number of these regretful sellers placed buy orders. The large concentration of these orders formed support at the same price that had been support previously.

The same type of price action is occurring now. People who sold at the bottom on Jan. 6 are placing buy orders. As for now, these orders have formed support and put a floor under the price.

If this support breaks, the stock may fall rapidly because it will be back to price levels that it gapped up through.

If a stock closes at one price and opens at another, there is no trading in between the prices. This can appear as a ‘gap' or blank space on a chart.

If there is no trading, then there is no one who sold who will be trying to buy shares if the stock gets back to the levels it gapped through going in the opposite direction.

Axon gapped up from $465.50 to $540.00. It may be about to gap back down.

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