Lucid Group, Inc. (NASDAQ:LCID) shares are trading sideways Thursday. But if they can break some resistance, a rapid and large move higher may follow.
"Gaps tend to refill" is an old trading expression. It is true, and the chart of Lucid illustrates some examples of it. This is why it is our Stock of the Day.
If a stock trades for a long time around a certain price level, a large amount of interest in this level will form. There will be numerous traders and investors who traded at it. This means there's a good chance support and resistance forms.
One reason why resistance forms is buyer’s remorse. This happens when people buy a stock and then watch it head lower. Some will try to sell if the stock eventually returns to their buy price so they can get out at breakeven. If there are enough sell orders it will create resistance.
Read Also: Producer Inflation Rises Less Than Forecasts In May, Jobless Claims Signal Labor Market Cracks
One reason why support forms is seller’s remorse. People sell a stock and then watch it go higher. Some vow to buy their shares back if they return to their sell price. If there is a large amount of these buy orders, it will create support.
When a stock closes at one price and opens the next day at a different price, there is no trading in between these two prices. This shows up as a blank space, or gap,on a chart.
If nobody had bought or sold between these two prices, there won’t be remorseful traders trying to buy or sell shares if the stock eventually returns to these levels.
This means if a stock gaps up and then eventually returns to these levels coming in the opposite direction, it could move quickly back through.
If a stock gaps down and then eventually rallies back to these levels, it could move rapidly back up through.
Sometimes a stock doesn't gap but moves fast through price levels. The same principle holds. If the stock doesn't spend a lot of time at these levels, there won't be a lot of interest.
This can be seen on the chart of Lucid.
If a stock makes a fast move or gaps up through levels, it can make a fast move down back through. If a stock has a fast move or gaps down through levels, it can make a fast move back up.
Read Next:
• Economists Send Urgent Warning After Dollar Hits 2-Year Low
Photo: Shutterstock
