Stock Of The Day: Rocket Lab's Next Move Could Signal Rally Ahead

Trading in Rocket Lab USA, Inc. RKLB is quiet Thursday. The stock is consolidating after a recent large move higher.

The move was driven by optimistic investors who believe President Donald Trump's efforts to fund the United States Space Force will benefit the company.

Shares may be breaking out and setting up for another uptrend. This is why it is Benzinga’s Stock of the Day.

There is a common perception among some analysts that technical analysis is not a reliable method, but when applied and understood correctly, it is the study of supply and demand in a market.

If a stock is trending higher, it's because there is more demand than supply. Investors and traders who wish to acquire shares are forced to pay premiums and outbid others. This puts the stock into an uptrend.

Resistance is a large concentration of sellers who are looking to sell at or close to the same price. There's enough supply to fill all of the demand. This is why rallies pause or end when they reach resistance. As you can see on the chart, the $29 level has been resistance for Rocket Lab.

Read Also: BlackRock’s Larry Fink Warns That New Inflationary Pressures Could ‘Shock’ The Stock Market: ‘It Could Be Pretty Bad’

Sometimes, stocks head lower after reaching resistance. This is what happened in early January.

This price action occurs when anxious sellers start to undercut each other. This can result in a snowball effect that forces the stock down

But sometimes, the buyers can overpower the sellers and push the price above the resistance. This is called a breakout. It could set the stage for another move higher.

If the stock consolidates after the breakout and the price level that had been resistance converts into support, it tends to be the beginning of a new uptrend, which looks to be the case here.

Resistance can become support when people who sold at the resistance think they made a mistake when the resistance broke, and the stock moved higher. Some decide to repurchase their shares if they can at the same price they had been sold for.

So, if and when the stock drops back to the price that had been resistance, these remorseful sellers place buy orders. If enough of them exist, it will create support at the same price that had been resistance.

When this happens, it could signal the beginning of a new uptrend, and Rocket Lab may be on the verge of such a move.

Read Next:

• Donald Trump Has ‘More Than 50%’ Of Net Worth In Crypto, Will Establish Strategic Bitcoin Reserve, Anthony Pompliano Predicts

Photo: Shutterstock