False Breakout For Fisker

Fisker Inc. FSR holders had cause for celebration when the shares soared by more than 20% on Tuesday. It turns out it was a classic false breakout. The shares came crashing back down and erased all of their gains.

False breakouts usually occur because of buy-stop orders. These are buy orders that traders place above resistance levels and above where the stock is currently trading.

The idea is that the stock isn’t bought until the resistance breaks. In theory, this means a new uptrend is forming and the trader can get in on it early.

But if there isn’t any follow through, the stock reverses and makes a big move lower as Fisker did.

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Photo: Courtesy of Fisker