Stock Of The Day: Amazon Stock Eyes Gap Refill

The old Wall Street saying “gaps refill” is true. It means that if a stock moves quickly, or “gaps,” through price levels going one way, and then eventually reverses and gets back to those same levels going the other way, it could move quickly or gap back through them in the opposite direction.

Amazon.com Inc. AMZN may be about to refill a gap. This would mean a move higher. That's why it is our Stock of the Day.

If a market is moving higher, there aren't enough sell orders to fill all the buy orders. Because of this, those who wish to buy are forced to pay successively higher prices. This is the only way they can get sellers interested and draw them into the market.

But when a stock reaches a resistance level the dynamics change.

Resistance in a financial market is a large group of traders and investors who are looking to sell at, or close to, the same price. At resistance levels, there are more than enough sell orders to fill every buy order.

Because of this, market rallies tend to pause or halt when they reach resistance.

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One of the main reasons why resistance forms in a market is because of buyer’s remorse or regret. This happens when people buy and then watch the price drop lower.

When this happens, some of the people who bought decided they made a mistake. They want to exit their positions, but they don't want to lose any money.

As a result, if the stock eventually rallies back up to their buy price they place sell orders. And if there are enough of these orders it will create resistance. This is why price levels that had been support frequently convert into resistance.

If a stock closes at one price and then opens the next day at a price that is much lower, it will appear as a blank space or a ‘gap' on a chart. This is what happened with Amazon between Aug. 1 and Aug. 2.

The shares closed on Aug. 1 at $187.04 and opened on Aug. 2 at $166.75.

There was no trading between these two prices. And if there was no trading, there can’t be anyone who bought who came to regret their decision to do so when the price moved lower.

So, now that Amazon is back in between these two prices, it may move rapidly upwards. Buyers may need to be aggressive and push the price higher if they want to acquire shares.

The gap may be about to refill.

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