Stock of the Day: Where is the Top for Diamondback Energy?

Diamondback Energy, Inc. (NASDAQ:FANG) shares gained more than 4% on Friday. The shares are nearing a resistance level. This could cap the price. It’s why Diamondback is the Stock of the Day.

Many old Wall Street sayings and adages are based on market principles. They are not myths.

‘Sell at former tops’ is one of them.

As the chart shows, the last six times Diamondback reached the $210 level, it hit resistance and reversed. If the shares reach this price again, the same thing may happen.

Buyer’s remorse can keep resistance intact for a long time.

When the stock reversed off resistance in early May, many people who bought shares around $210 regretted it. Some held onto their losing positions.

They also decided that, if they could, they would exit their positions at breakeven. When the shares rallied back to $210 in mid-May, they placed sell orders. These orders created resistance.

Then a similar dynamic occurred. When Diamondback rallied back to $210 in early June, remorseful buyers placed sell orders, creating resistance again.

The same thing occurred three more times when the shares returned to $210.

Now the shares are approaching this level again. There is a good chance resistance will appear there.

Stocks tend to sell off after they reach resistance levels. This happens when some of the sellers who created it become anxious and impatient.

They start to worry that someone else will sell their shares at a lower price. They don’t want to miss the trade, so they lower their offers. Other concerned sellers see this and do the same.

The result is a snowball effect that forces prices lower.

Some old expressions make sense. Diamondback’s chart illustrates how selling at former tops can be a good idea.

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