Stock Of The Day: NVIDIA Tests New Resistance — Could Another Breakout Be Brewing?

NVIDIA Corporation NVDA is trading higher on Monday after consolidating last week, but the shares may be about to break out.

Breakouts can have bullish implications. This is why our trading team has made NVIDIA our Stock of the Day.

Stock prices are determined by supply and demand. If there is more supply or shares for sale than demand or shares to buy, the price will trend lower. This happens because sellers are forced to undercut each other to attract buyers.

If there are more shares to be bought than there are to be sold, the price will trend higher. Buyers will be forced to outbid each other to draw sellers into the market, causing a snowball effect that pushes the price up.

Rallies end or pause at resistance levels.

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Resistance is a level or narrow price zone where there is enough, or more than enough supply to fill all of the demand. Buyers can acquire as many shares as they like without increasing prices.

Sometimes, stocks reverse and trend lower after they hit resistance. This occurs when some sellers become concerned that others will be willing to sell their shares for a lower price.

As a result, these concerned sellers lower their prices. Other concerned sellers see this and do the same thing. This forces the shares into a downtrend.

But sometimes, when a stock reaches a resistance level, the buyers overpower the sellers, moving the price higher. When this happens, traders say it is a ‘breakout'.

This is a bullish dynamic that suggests the stock will continue to rally. It shows that the sellers who created the resistance have either finished or canceled their orders.

With this large amount of supply removed from the market, buyers will be once again forced to outbid each other, moving the price higher.

As you can see on the chart, NVIDIA encountered resistance around $122.40. After breaking this resistance, the stock made a big move.

Now, NVIDIA is testing and could break resistance around $141.50. It may be on the verge of another upward move.

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