Stock Of The Day: Is Molina Healthcare About To Break Out?

Trading is quiet in Molina Healthcare, Inc. (NYSE:MOH) on Wednesday. But things may change in January.

The shares have stalled at a resistance level. It's unlikely they are here for an extended time. This is why Molina is the Stock of the Day.

Resistance and support levels are like forks in the road. When a stock reaches one, it tends not to remain at that level for long. They either reverse or break through.

As you can see on the chart, there is resistance for Molina around $170.50.

In September, the shares found support at this level and rallied thereafter. When this happened, people who bought at the support were glad they did.

But in October, things changed. The support broke, and Molina traded lower.

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When this happened, some of these now unhappy buyers decided to hold on to their losing positions.  They also decided that, if they could do so, they would sell at break-even.

So when the shares rallied back to this price in December, these remorseful buyers placed sell orders. The large concentration of these orders created resistance at the same price that had previously been support.

There is a chance that the buyers eventually overpower the sellers and break the resistance. When stocks break through resistance, subsequent moves tend to be higher.

This is because the ‘breakout' shows that sellers have left the market. Buyers are forced to outbid each other to draw sellers back in, and this can create an uptrend.

But sometimes stocks head lower after reaching resistance.

This happens when some of the sellers who created the resistance become anxious and impatient. They reduce the prices at which they are willing to sell their shares. This can lead to a snowball effect as other impatient sellers follow suit.

Resistance levels are like forks in the road. There is a good chance Molina either breaks out or reverses. It is unlikely to remain at this level for long.

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