Stock Of The Day: The Gap Gaps Higher, Will Likely Run Into Resistance At This Level

Shares of The Gap, Inc. GAP are blasting off on Friday. The company reported earnings of 72 cents a share. This was ahead of estimates of 58 cents.

Some traders are curious as to whether or not a new trading range will form. They will be focused on two important price levels. This is why our team of technical analysts has made Gap our Stock of the Day.

If Gap moves higher, there is a good chance that it will run into resistance around the $29.10 level. In the financial markets, there tends to be resistance at levels that were previously peaks. And as you can see on the chart, this level was a peak in May.

This is due to psychology.

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There are traders who purchased shares at the peak that now regret doing so because the price is lower and they are looking at losses. If the shares rally back to their buying price, they will place sell orders so they can get out of their positions at breakeven. If there are enough of these orders, it will create resistance at the same level.

If the stock heads lower, there is a chance there is support around $24.80. As you can see on the chart below, this level was also a peak. And there tends to be support at levels that were peaks.

Some who sold there regret doing so now that the price is higher. They experience ‘seller's remorse'. Some decide to buy their shares back if they can do so at the same price they were sold for. If there are enough of these buy orders, the level that had been a peak can turn into support.

The long-term picture for Gap seems to be bullish. CEO Richard Dickson said the company’s performance year-to-date “gives us the confidence to raise our full-year outlook for sales, gross margin, and operating income growth.”

But in the short run, traders will be watching these levels to see if they form the resistance and support of a new trading range.

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Image: Wikimedia Commons