Reed's Rallies But Crashes Into Resistance

Shareholders of Reed's, Inc. REED have learned a painful lesson. Markets have memories. In this case, it’s a resistance level.

Reed's stock surged earlier this week after the company announced an expanded distribution agreement with CVS Pharmacy. The next day, the company announced a common stock offering of 6.68 million shares at $1.18 per share.

At resistance levels, there are more shares for sale than there is demand for them. This is why rallies end when they reach these levels.

Sometimes stocks sell off and go lower after they hit resistance. This happens when some of the sellers who created the resistance get impatient and decide to sell for a lower price.

This causes a chain reaction. Other sellers accept lower prices, too, and this forces the stock into a downtrend.

This is what happened to Reed's stock last August when it reached the $1.45 level. It also happened on Tuesday and if shares make it back to $1.45, there’s a good chance it happens again.