Stock Of The Day: Is Carnival Corporation Ready For A Breakout?

This time may be different. The last two times shares of Carnival Corporation & plc CCL reached the important $17.60 level, a large selloff followed. But now it looks like a breakout is underway. This would have bullish implications and may be the beginning of a new uptrend.

That's why our trading experts have made it Benzinga’s Stock of the Day.

When a stock is trending higher, there isn't enough supply to fill all the demand and there aren't enough sell orders to fill all the buy orders.

Investors and traders who wish to purchase shares are forced to pay premiums to draw sellers into the market. They need to pay more than the price of the last trade, and this forces the shares into an uptrend.

Carnival’s $17.60 Resistance Level:

Sometimes markets reverse and head lower after they reach resistance levels. As you can see on the chart, this was the case with Carnival the last two times it rallied and reached the $17.60 level.

When a resistance level is reached, the dynamic changes. There is more supply than demand at these levels. Buyers can take in all they want without moving the price higher.

This happens when some of the traders and investors who wish to sell notice that the price has stopped moving higher. They get the sense that other sellers are coming into the market.

Some become concerned that they may miss the trade. They know the buyers will go to whoever is willing to sell at the lowest price.

As a result, they lower the prices at which they are offering their shares. Other anxious sellers see this and do the same. It results in a snowball effect that pushes the price lower as they undercut each other.

Potential Breakout:

But sometimes when stocks reach a resistance level, they continue to rally and move through it. This is called a “breakout” and it illustrates an important supply and demand dynamic.

It shows that the sellers who created the resistance have either finished or canceled their orders. And with this large amount of supply out of the way, buyers will have no choice but to pay higher prices to acquire shares.

This bidding war could form a new uptrend. Carnival may be about to move higher.

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