Stock Of The Day: Is Bright Horizons Breaking Out?

Bright Horizons Family Solutions Inc. BFAM is trading lower Wednesday. It is consolidating after rallying over the past week.

The shares appear to be breaking out. This can be a bullish dynamic that suggests a move higher. This is why we have made it our Stock of the Day.

As you can see on the chart, $130 has been resistance for the stock. It isn't a coincidence that there was resistance at this level. In October it was support, and levels that were support can convert into resistance.

Some of the people who bought shares around $130 regretted doing so when the price dropped below that. A number decided to exit their positions, but only if they could do so without losing money.

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As a result, when the shares rallied back to $130 these remorseful buyers placed sell orders. The large amount of these orders formed resistance at the same price that had previously been support.

But now the price has climbed above this resistance. When this happens, traders say that the support has been broken.

This can be a bullish dynamic. It means that the large group of traders and investors who created the resistance have either finished or canceled their orders.

With this large amount of supply removed from the market, the stage could be set for a move higher. If buyers wish to acquire shares, they may be forced to outbid others and pay premiums to draw sellers back into the market.

This could result in a new uptrend forming.

Markets don't move in straight lines. They typically progress as a series of peaks and valleys. When a valley forms at a higher price than the one that proceeded it, traders say it is a higher low.

This is a bullish action. It shows that the buyers are entering the market at higher prices. Many times, when a stock reaches resistance after forming a series of higher lows, the resistance breaks and a new uptrend gets started

This may be about to happen with Bright Horizons.  

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