Stock Of The Day: GM Earnings Fuel Breakout, Shares Accelerate Past Key Resistance Level

The Street loves General Motors Company’s GM earnings. The stock is rallying and appears to be breaking out.

This is why Benzinga has made it the “Stock of the Day.”

When a stock is heading higher, the market is out of equilibrium. There isn't enough supply to fill all the demand. In other words, there are more buy orders than there are sell orders.

As a result, investors and traders who wish to acquire shares are forced to bid premiums to draw sellers into the market. They need to be willing to pay a higher price than the one at which the prior trade was executed. This can force the shares into an uptrend.

When a stock reaches a resistance level, the dynamic changes. There is more than enough supply to fill all the demand, so buyers can buy as many shares as they want without worrying about increasing the price.

Sometimes, stocks reverse and move lower after they reach resistance. As you can see on the chart, this is what happened with General Motors when it reached the resistance at $50 in July, August, and September.

This action occurs when some of the sellers get nervous. They don't want to miss the trade and know that the buyers will go to whoever is willing to sell at the lowest price. As a result, they reduce the prices for which they are willing to sell their shares.

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Other nervous sellers see this, and they also reduce the prices at which they are willing to sell. This results in a snowball effect, pushing the price lower.

But sometimes, when a stock reaches a resistance level, it can push through it and move higher. Traders call this a breakout, and General Motors may be staging one now.

As you can see on the chart, the shares are trading above what had been resistance at the $50 level. This illustrates a potentially important supply and demand dynamic.

It could mean that the investors and traders who created the resistance with their sell orders are out of the market. They have finished or canceled their orders.

With this supply gone, buyers may be forced to bid higher prices to attract potential sellers’ attention, which could result in a new uptrend forming.

Breakouts tend to illustrate bullish dynamics, and shares of General Motors may be about to head higher.

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