Shares of Amazon.com, Inc(NASDAQ:AMZN) are trading higher on Wednesday and getting close to their previous all-time highs. Stocks tend to encounter resistance when they return to previous peaks or tops. This is why Amazon is the Stock of the Day.

Some people think that technical analysis is like astrology or reading tea leaves. They don't believe you can use charts to determine when stocks will turn.

This is understandable.

Many technical analysts do not have a deep understanding of the analysis. They look at charts and mindlessly try to identify patterns without understanding what the patterns illustrate and why they form.

This is why they are unsuccessful.

If understood and applied correctly, technical analysis is the study of supply and demand and psychology in a market.

Almost every investor or trader has experienced buyer's remorse. They buy a stock only to watch the price drop.

Many regret their decisions to buy. They tell themselves they will hold their losing positions, but that they will also sell them if they ever can do so at breakeven. As a result, if the shares return to their buying price, they sell.

It there are a large number of other investors doing the same thing, it can create resistance in the markets. This can be seen below.

Amazon Chart

Back in December, many investors bought shares around the $220 level. At first, they thought it was the right thing to do because the price rallied. But when this support broke in February, they decided they had made a mistake.

When the price rallied back to $220 in March, they sold, and this created resistance.

Something similar tends to occur at former peaks. Many of the people who purchased shares at the top regretted doing so when the price dropped.

There have been remorseful buyers holding shares of Amazon since it hit it all-time high around $255 in November.

If the shares return to this price, they will be placing sell orders at the former top. If there are enough of these orders, it could put a ceiling on the price of Amazon.

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