Stock Of The Day: Ford Stalls At Resistance, Technicals Suggest Potential Pullback

Trading in Ford Motor Company F is quiet Thursday and the stock has been sideways over the past week. But that may be about to change.

Ford is trading at a resistance level, and stocks frequently head lower after they reach these levels. This is why our team of technical analysts has made it our Stock of the Day.

The term “resistance” refers to a price level where there is a large amount of sell interest. There are enough sell orders to fill all of the buy orders, so rallies or moves higher tend to stall out when they reach resistance.

Sometimes, sellers become anxious, fearing others may undercut their asking prices. In response, they lower their prices, prompting additional sellers to follow suit, creating a cascading effect that drives the stock lower.

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As you can see on the chart, there has been resistance for Ford around $11.30. It stalled out at this level in August, September, October, and November. A selloff followed each time.

A price that had previously been resistance tends to become resistance again. This is a common occurrence in the markets and it happens because of buyer's remorse.

Some of the people who buy shares at resistance regret doing so when the price goes lower. They decide that if the stock rallies back to the buying price, they will place sell orders to get out at breakeven.

If there is a sufficient quantity of these orders, it will form resistance at the same price that had been resistance before.

Resistance can also form at prices that had previously been support. This is another common occurrence, and it is also due to buyer’s remorse.

People buy shares at support and are happy if the price heads higher. But if the support breaks and it goes lower, many regret buying. They decide to get out at breakeven if they can.

As a result, if the stock rallies back to what had been support, they place sell orders.  If there are enough of them, it will form resistance at the price that had been support. You can see on the chart that the $10.25 was support for Ford and now it is resistance.

Stocks tend to sell off after hitting resistance, so there is a good chance Ford is about to head lower.

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