Stock Of The Day: Honeywell's Breakout May Stall At Familiar Resistance Zone

Honeywell International Inc. HON is quiet Wednesday. This wasn't the case yesterday. The shares rallied by more than 5%. The company reported earnings of $2.51 per share. This was well ahead of the $2.21 the Street was looking for.

The chart of Honeywell illustrates an important market dynamic. This is why Benzinga’s technical analysis team has made it our Stock of the Day.

Markets can be driven by investor and trader psychology and emotions.

One of these emotions is buyer's remorse.  This occurs when people regret buying a stock if the price subsequently drops.

Sometimes, when people are remorseful buyers, they decide to hold onto their losing positions. But they also decide that if and when the stock eventually returns to their buying price, they will sell. This way they can exit the position without losing any money.

Buyer’s remorse can be seen on stock charts.

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You can see on the chart that the $216 level was support for Honeywell in January. Many who bought at this time thought they made a good move when the price rallied soon after.

But in February the support broke and the shares moved below it. When this happened, many of these previously happy buyers thought the decision to buy was a mistake.

Many decided that if Honeywell got back to $216, they would sell.

So, when the shares returned to this level in early March they placed sell orders. There were so many of them that it formed resistance at the level that had previously been support.

When the shares sold off after hitting the resistance, many who bought at that level regretted doing so. They also decided that if they could ever break even, they would. As a result, when Honeywell rallied back to $216 in late March, they placed sell orders.

The large concentration of these sell orders formed resistance at the level again.

Savvy traders understand that psychology can affect price action. Buyer remorse can turn support into resistance. It can also keep resistance intact.

If Honeywell reaches $216, there is a good chance it encounters resistance again.

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