Amgen Inc. (NASDAQ:AMGN) is lower on Thursday. Yesterday, the shares gained almost 8% after the company released earnings. The firm has reached a critical price level. This is why it is our Stock of the Day.
If a stock is in an uptrend, it is due to an imbalance in demand and supply. There are more shares to buy than to sell. If traders wish to acquire shares, they are forced to pay higher prices than other buyers.
This can make the stock trend upwards.
When a stock reaches a resistance level, it stops going higher. This is because there are enough sell orders to fill all of the buy orders. The buyers don't need to push the price higher.
Sometimes, stocks reverse and trend lower after they reach resistance. As you can see on the chart below, this is what happened with Amgen the last four times it reached the $323 level.
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This action occurs when some of the traders and investors who created the resistance with their sell orders become impatient. They start to think someone else will be willing to sell at a lower price, and they know this is who the buyers will go to.
These impatient sellers reduce their offer prices because they don't want to miss the trade. Other impatient sellers do the same thing, and it results in a snowball effect that pushes the price lower.
But if the buyers keep moving the price higher, eventually the sellers who created the resistance will fill their orders and leave the market.
This means if new buyers come in, they will be forced to once again outbid each other if they want to acquire shares. This could result in a new uptrend forming.
$323 is an important level for Amgen.
When stocks reach important levels, they tend not to stay at them for too long. They either reverse or break through. The next few days will be important for Amgen. Traders are watching it closely.
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