Stock Of The Day: Imminent Reversal In American Water Works?

Shares of American Water Works Company, Inc. AWK are trading higher on Monday. But that may not be the case for much longer. There is a chance the stock reverses and heads lower.

As you can see on the chart below, the last three times it reached levels around $148.00, it reversed and sold off. This may be about to happen again, which is why we have made it our Stock of the Day.

Resistance forms in markets due to investor and trader psychology.

Some people purchased shares around $148.00 who regretted doing so when the price dropped soon after. Many told themselves that if the price eventually rallied back to this level and they could exit their positions without losing money, they would.

So, when the price got back there in September, they placed sell orders. There were so many of these sell orders that it created resistance at the same level that had been resistance before.

Then a similar thing occurred.

Read Also: Mark Cuban Warns Of ‘Red Rural Recession’ As Hundreds Of Small Town MAGA Supporters Reportedly Lose Federal Jobs: ‘Their Finances Will Be Turned Upside Down’

Many of the people who purchased shares around this level regretted doing so when the price fell after. Some of these remorseful buyers decided that they made a mistake and vowed to sell their shares around breakeven if they could.

When American Water Works returned to $148.00 in March, they placed sell orders. The large concentration of these orders formed resistance at the level once again and the stock sold off after.

Now that the shares have returned to around $148.00, remorseful buyers will place sell orders once more, which could create resistance.

Stocks tend to sell off of resistance. This is also due to psychology.

This happens when some of the traders and investors who wish to sell become concerned that others will be willing to sell their shares at a lower price than they are. They know the buyers will go to whoever is willing to sell to them at the lowest price.

Because of this, they reduce their offering price. Other concerned sellers see this and do the same. It causes a snowball effect that pushes the price lower as these sellers undercut each other.

There is a good chance this action occurs again in American Water Works.

Read Next:

• Goldman Sachs Slashes S&P 500 Price Outlook As Tariffs, Weaker Growth Hit Earnings

Image: Shutterstock