Palantir Technologies Inc. (NASDAQ:PLTR) shares are consolidating on Friday. But there’s a chance they break out. As you can see on the chart, they are at an important resistance level. If they can clear it, the stage could be set for a move higher. This is why Palantir is the Stock of the Day.
Resistance is a price level at which there is a large number of shares for sale.
Uptrends form when buyers outbid each other and pay premiums. They need to do this to attract sellers. They know the sellers will go to whoever is willing to pay the highest price, and they don’t want to miss the trade.
The dynamic changes when the stock reaches resistance. There are enough sell orders to fill all of the buy orders. The buyers don’t need to push the price any higher.
Sometimes stocks sell off after they reach resistance. As you can see on the chart below, this is what happened the last time Palantir reached resistance around the $160 level.
Stocks head lower after reaching resistance when the sellers who created the resistance become anxious and impatient. They know that the buyers will go to whoever is willing to pay the highest price.
As a result, the sellers undercut each other and offer their shares at a discount. Other impatient sellers do the same, and this forces the shares into a downtrend.
But sometimes, when stocks reach resistance, buyers eventually overpower sellers, and the price moves higher. Traders call this a ‘breakout’, and it can be a bullish dynamic.
If the stock is above what was resistance, it can be inferred or assumed that the sellers who created it have left the market. With this supply out of the way, new buyers will have to force the price higher and outbid each other. This puts the shares into an uptrend.
Palantir may have broken the resistance at $160. It could continue to move higher.
Image: Shutterstock
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