Stock Of The Day: Is NRG Energy Losing Steam? Chart Pattern Signals Trouble Ahead

Shares of NRG Energy, Inc. NRG came back a little on Wednesday, but they are still in a downtrend.

We have made NRG our Stock of the Day. On the chart, a classic double-top pattern has formed, suggesting the shares may be about to head lower.

Chart patterns are graphical illustrations of the trading and price action occurring in a market. When the leadership changes from the bulls to the bears, the action can manifest itself on the chart as what analysts call reversal patterns.

One of these is the double top.

As you can see on the chart, the shares made a big move higher in May. But when they reached levels around $160, the sellers came out of the woodwork, and put a ceiling on the price.

Then, the stock backed off, but it moved to $160 in early June. Once again the sellers overpowered the buyers and pushed the price lower.

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Some of these sellers bought NRG for around $160 in May. When the price fell after, many experienced buyer remorse. They decided to sell their shares if they returned to $160, and they could finally exit their positions at breakeven.

The large concentration of their sell orders formed resistance at the same level that had previously been resistance.

In the lower part of the pattern, called the ‘neckline', there was support around $145. Buyers put a floor under the price at this level.

But now this support has been broken. Sellers have overpowered the buyers and forced the price lower.

Breaking of support tends to be a bearish dynamic. It shows that the investors and traders who created the support with their buy orders have either finished or canceled their orders.

With this large amount of demand (buyers) removed from the market, sellers will be forced to undercut each other to draw buyers back in. This could result in a snowball effect that pushes the price lower.

The classic double-top pattern has bearish implications. A new downtrend may be forming in NRG.

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