Stock Of The Day: Break Out In Ford? This Level Has Been Important For The Automaker Since September

Trading is quiet in Ford Motor Company F Wednesday. But that may not be the case for long. The stock is trading at a resistance level and could be on the verge of a breakout.

This is why it is our Stock of the Day.

In the stock market, some price levels are more important than others. Sometimes the reason why is obvious, but sometimes it isn't.

The good thing for traders is that they don't need to understand why a level is important. They just need to recognize which ones are. When a stock gets to an important level, they tend not to stay there for too long. They either reverse or break through.

As you can see on the chart below, the $10.25 level has been important for Ford since September. It was support then and in November. Then it became a resistance level in January. Now, it has become resistance again.

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Support levels converting into resistance levels is a common occurrence in the stock market. It happens because many of the people who bought shares while the stock was at support come to regret doing so if the support breaks and the price heads lower.

Some of these regretful buyers make up their minds to hold on to their losing positions. But they also decide that if they can eventually get out at breakeven they will.

As a result, if and when the stock rallies back to their buy price, they place sell orders. If there are enough of them it will convert the price level to resistance. That's what happened here.

If the buyers eventually overpower these sellers and push the price above the resistance, traders will say Ford is ‘breaking out'.

This isn't just symbolic. It illustrates an important dynamic. It shows that the traders and investors who created the resistance have either finished or canceled their orders.

With this large amount of supply taken off of the market, buyers may have a hard time finding sellers. They may be forced to be aggressive and outbid each other in order to draw them back into the market.

This could result in a snowball effect that forces the price higher, and it may be about to happen with Ford.

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