Stock Of The Day – Will The Newmont Mining Rally Continue?

Shares of Newmont Corporation NEM are trading flat Monday. The company’s stock moved significantly higher last week due to the recent boom in gold.

There is a chance the move higher resumes. And if it does, there is also a chance it ends or stalls around the $58.00 level. This is why it is our Stock of the Day.

Resistance is a price level or zone where there is a large amount of sell interest. If a market is trending higher, there aren't enough sell orders to fill all the buy orders. Traders and investors who want to purchase shares are forced to outbid each other.

This price action can force the shares into an uptrend.

But when a stock reaches resistance, the dynamic changes. There are enough or more than enough shares for sale to fill all of the buy orders. This is why rallies can end or pause when they reach resistance.

One of the main reasons resistance forms in markets is buyer's remorse. This happens when a person regrets buying a stock if the price drops afterward.

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Sometimes, these regretful buyers decide to hold onto their losing positions. But they also decide that if they can eventually get out at breakeven, they will. As a result, if the price eventually rallies back to their buy price, they place sell orders.

As you can see on the chart, the last time Newmont reached the $58.00 level, it hit resistance and reversed.

There are people who bought then who have been waiting to get out. So, if Newmont makes it back to this price they will be placing sell orders. If there is a large amount of these orders, it could create resistance there again.

You can also see on the chart that after Newmont reversed off $58.00, it gapped and made a rapid move lower down to around $48.00. Because it moved so quickly through these levels, there wasn't enough time for a large concentration of buyers to form.

This means that now that the stock has reversed back to these prices but is coming in the opposite direction, there isn't a large group of remorseful buyers trying to sell on the way up.

This means buyers have had to be aggressive and push the price higher to draw sellers off the sidelines. This is why the shares are gapping up.

There is a good chance this move higher will continue. But there is also a good chance it ends, or at least pauses, if it reaches levels around $58.00.

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