Alphabet Inc. (NASDAQ:GOOGL) is trading higher on Wednesday. It has gained about 5% in just three days.
The uptrend may continue, as the shares are testing resistance and may be on the verge of a breakout. This is why Alphabet is the Stock of the Day.
Resistance is a price level at which a large number of shares are for sale. If a stock is trending higher, it’s because there aren’t enough sell orders to fill all of the buy orders.
Those who wish to acquire shares are forced to outbid each other and pay premiums if they want to get sellers interested. This forces the shares into an uptrend.
This changes at resistance — and because there are enough sell orders to fill the buy orders, the rally will end or at least pause.
There tends to be resistance at price levels that had previously been support. This can be seen on Alphabet’s chart.
In April, the $374 level was support. People who bought shares at this level were glad they did when the price went higher. But when this support broke in early June, they changed their minds. They decided that selling was actually a mistake.
Some also decided to sell out of their positions if they could eventually do so at breakeven. When Alphabet rallied back to $374, they placed sell orders. These created resistance at the former support level.
The same dynamic is currently taking place at the $358 level. As you can see, this level was support in early June. Now it has become resistance because of buyers’ remorse. People who bought at $358 are now selling, and this has created resistance.
If a stock can clear this resistance and stay above it, traders call this a breakout. This can be a bullish dynamic because it shows the sellers who created the resistance are gone. They have either canceled or finished their orders.
Buyers may once again be forced to outbid each other to attract sellers. This can keep Alphabet’s uptrend intact.
Photo: Markus Mainka via Shutterstock
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