Stock Of The Day: Boeing Lands Some Good Lessons, Here's A Technical Analysis

The Boeing Company BA settled with its union. Shares are trading down fractionally.

The chart of the stock offers some technical analysis lessons that can lead to profits. This is why it is our Stock of the Day.

If a stock is trending lower, like Boeing was in late April, there aren't enough buy orders to fill all the sell orders. Traders who wish to sell are forced to push the price lower to get buyers interested.

But at a support level the dynamic changes. There is enough demand to absorb all the supply. Sometimes, the buyers who created the support start to outbid each other and this can move the price higher.

When this happens, some of the traders who sold their shares at support think they made a mistake. Many of them vow to buy their shares back if they can get them at the same price they were sold at.

As a result, when Boeing returned to levels around $163.50 in early August a number of these remorseful sellers placed buy orders. This large concentration of buy orders caused support to form at the level again.

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In September the support broke and the price moved lower. When this happened, many of the traders who bought shares for around $163.50 came to regret their decision to do so.

Some of them decide to sell their shares. But only if they can get out at breakeven. So, when the shares rallied back to the former support level, they placed sell orders.

This large concentration of sell orders turned what had been support into a resistance level.

Technical analysis is not a myth, even though many think it is. They don't understand that if applied correctly, it is an analysis of investor and trader psychology.

Good traders know that there can be support at former support levels because of ‘seller's remorse'. They also know that there can be resistance at levels that had been support due to ‘buyer's remorse'. This insight can lead to profits because it can help traders understand where trends may end and reverse.

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