Trading in QuantumScape Corporation (NYSE:QS) is subdued on Thursday, but this wasn't the case on Wednesday. The shares soared more than 18% after the company announced a strategic partnership with Corning Incorporated (NYSE:GLW).
Now QuantumScape is at an important price level. As you can see on the chart, the last time the stock reached $14.70 it reversed and went lower. Now it is back to this level again, and the same thing may happen. This is why QuantumScape is our Stock of the Day.
Traders would say that the $14.70 level is a resistance point.
At resistance levels, a large number of shares are available for sale. If a market is in an uptrend, it is because there is more demand for the stock than there is supply. Buyers need to outbid each other to acquire shares, and this pushes the price higher.
The situation changes when the stock reaches resistance. Because there are so many shares for sale, buyers can acquire as many as they wish without having to raise the price.
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Sometimes, stocks reverse and trend lower after reaching resistance. This happens when some of the traders and investors who created the resistance with their sell orders become impatient and anxious.
They know those who want to buy will go to whoever is willing to sell at the lowest price. As a result, these anxious sellers reduce their offering prices. Other anxious sellers see this and do the same. The result is a snowball effect that pushes the price lower.
But sometimes when a stock reaches resistance, the buyers eventually overpower the sellers. This moves the price above the resistance. When this happens, traders refer to it as a breakout.
Breakouts are considered bullish. They show that the sellers who created the resistance are gone. They have either finished or canceled their orders.
With this large amount of supply removed from the market, buyers will need to drive the price higher again to purchase shares.
Important price levels are like forks in the road. Stocks tend not to stay at them for too long. They either reverse or break through. A new trend is expected to emerge at QuantumScape soon.
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