For investors who are not familiar with technical analysis, price action may seem random and difficult to interpret. Yet therer may be a simple reason behind a technical formation — and ways to take advantage of it. With that in mind, Delta Air Lines, Inc. (NYSE:DAL) is the PreMarket Prep Stock of the Day.
Delta Stock Forms Resistance: Before Thursday’s price action, Delta has been struggling to get through $42. This is evidenced by the price action since Jan. 7, when the issue peaked at $41.97.
Over the following three session, some investors attempted to exit the issue ahead of Thursday’s fourth-quarter report. As a result, the issue peaked in a well-defined area just under the aforementioned high between $41.53-$41.80.
What's Going At $42? During Thursday’s show, the host discussed why the issue has been struggling to clear $42. In great detail, the hosts identified the reason for the price rejection at this level. One of those reasons: some traders have the ability to view large resting orders patiently waiting to be executed.
Co-host Dennis Dick made use of the NYSE Open Book feature to explain the reason. It's a market data subscription that provides a real-time view of the exchange's Limit Order book for all NYSE-traded securities and that lets traders see aggregated limit-order volume at every bid and offer price.
In simple terms, there was a large institutional order that may have been there for days or weeks, perched to sell 131,000 shares at $42, which equates to $5.5 million of buying power to take that order out.
That order, by a large player, was using the level as an exact point to exit a long-term position. Dick went on to explain how the order book can get ahead of and explain a technical formation. The full discussion on the issue from Thursday’s show can be found here:DAL Price Action: Since it was an earnings day for the issue, both the volatility and volume were elevated. As a result, after the higher open, the issue had a brief dip and then blasted off.
With the strong momentum to the upside, either shorts used the size to cover or aggressive longs used the order to go long. That turned out to be a good strategy, at least for the short term, as the issue rallied all the way to $42.54 before retreating to the $42 area.
The stock ended the session 2.09% higher at $41.47.
