Stock Of The Day: Will Estee Lauder Fill The Gap?

The stock of The Estée Lauder Companies Inc. EL is consolidating Tuesday. This comes after the shares gained more than 10% on Monday. The move higher ended when they slammed into resistance around $74.75.

Estee Lauder is our Stock of the Day. It isn't a coincidence yesterday's rally ended where it did, and the shares may be about to fill a gap.

Some analysts believe the market follows a “random walk.” They believe that it is impossible to time the market.

These analysts are wrong.

If the market followed a random path, no price level would be more important than any other. But a chart will show that some levels are clearly more important than others. These are called support and resistance levels.

Estee Lauder ran into resistance around $74.75. It wasn't random and it wasn't a coincidence.

There was resistance at this price because it was resistance in late February.

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Many of the traders and investors who bought shares then decided they made a mistake when the price dropped. Some also decided to sell their shares if they could eventually do so at breakeven.

So, when the shares reached $74.75, these remorseful buyers flooded the market as sellers. Their selling put a top on the price.

If the buyers can overpower the sellers who created the resistance, there is a good chance the stock makes a rapid move higher.

One of the main reasons for market resistance is buyer's remorse. This is why there was some around $74.75.

As you can see on the chart, in January Estee Lauder gapped down from around $80.80 to around $74.75. When a stock gaps from one price to another, there is no trading at the levels between the two prices.

If there was no trading, there would be no remorseful buyers trying to sell on the way up. This means there may not be significant sell interest if the stock gets back to these levels heading in the opposite direction.

Buyers will be forced to outbid each other and pay successively higher prices to draw sellers back into the market. This price action could force Estee Lauder higher.

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