Stock Of The Day: Breakout In Johnson & Johnson

Johnson & Johnson JNJ stalled out at resistance around the $165 level. There tends to be resistance at price levels that had previously been resistance. As you can see on the chart below, that's the case here. This level was also resistance in March.

‘Sell at former peaks' is an old trading saying, and there is simple logic that supports this idea. That's why our team of technical analysts has made Johnson & Johnson our Stock of the Day.

In March, traders and investors purchased shares at around $165. They thought it was the right thing to do.

But when the stock dropped after this, some of them questioned their judgment. They came to think that buying was a mistake because they had a losing position.

A number of these unhappy buyers decided to hold on to J&J. However, they also determined that if the stock ever returned to their original buying price, and they could sell their shares at breakeven, they would.

So, when the stock rallied back to $165 yesterday, they placed sell orders. There were many of these orders. It made resistance form at the level once again.

The stock also just broke out of a classic ascending triangle pattern. This pattern is a graphical illustration of patient sellers and anxious buyers. These conditions set the stage for the subsequent move higher.

Starting in April, a large group of people wanted to sell J&J around $157. They were content to be patient. If the buyers came to them, they would sell. But if not, they would hold their ground.

This is why the resistance line around $157 is horizontal.

However, over the same period, buyers became increasingly anxious and aggressive. They came into the market at higher prices. This is why the support line on the chart slopes higher.

Good traders understand charts.

They know that there can be resistance at former peaks. They also understand the dynamics that make this happen and how anxious buyers and passive sellers can force stocks into an uptrend.

If understood and applied correctly, technical analysis is a study of supply and demand in a market. Savvy traders will profit from this.

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