Stock Of The Day: Where Will The Dollar General Rally End?

Shares of Dollar General Corporation DG are trading lower Wednesday. This follows Tuesday’s gain of more than 4%. There is a good chance that the rally will get back into gear, and the price will move higher.

Benzinga made Dollar General our Stock of the Day because it has just broken out.

Resistance is a price or a price zone where there is a large amount of sell interest. Rallies have a tendency to pause or reverse after they reach resistance.

Stocks move lower after they reach resistance when some of the traders and investors who created the resistance start to undercut each other's prices. They know the buyers will go to whoever is willing to sell at the lowest price, and they don't want to miss the trade.

This undercutting can result in a snowball effect that pushes the price lower.

But sometimes when a stock reaches resistance the buyers eventually overpower the sellers. This forces the price above the resistance. When this happens, traders say it's a breakout.

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This can be a bullish dynamic that can result in a new uptrend forming.

If the stock is above a former resistance level, it can mean that the traders who created the resistance have left the market. They have canceled or finished their orders.

This could set the stage for a move higher. When new buyers enter the market, they will have a hard time finding someone to buy shares from. As a result, they will be forced to outbid each other and pay premiums to bring sellers off of the sidelines.

This can form a new uptrend.

Dollar General is also reaching price levels that it gapped down through. When a stock closes at one price and opens at a different one, there is no trading between these two price levels, which appears as a blank space or ‘gap' on the chart.

Because there was no trading, there probably aren't many traders who have a vested interest in these levels. This means if the stock returns to them, there may not be a significant number of sellers.

To acquire shares, the buyers will have to be aggressive and force the price higher. This could result in a rapid and significant move upwards as the gap refills.

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