Trading isn’t just about finding the perfect entry, it is also about having an exit plan. Resistance levels are prices from where the stock price has been pushed down in the past. Resistance levels are often used as exit points because of this tendency. Resistance levels are also used by short sellers to enter into positions, expecting the price to drop. While there are no assurances that the price won’t move above resistance, there also are no assurances it will. Since the price has shown a tendency to reverse at resistance, selling at resistance (especially in an overall downtrend) is usually the prudent choice. These three stocks are trading at, or near, resistance.
Palo Alto Networks, Inc. (PANW) has rallied off its June low of $114.64 into descending trendline resistance in the $132 to $135 region. This descending trendline extends back to December, when the stock made a swing high at $194.73. Look to sell between $135.50 and $132, as this is an area which could send the price lower again. The overall trend in the stock is down since December, and a trend channel in place since April gives an idea of where the price could go next. The price has been bouncing off the top and bottom of the channel, so the next target is the bottom of the channel at $110 to $109. A strong rally above $135.50 breaks the descending trend channel and indicates that the price could be heading higher. That isn’t necessarily a signal to buy though. A buy signal only occurs if a strong rally develops, followed by a pullback that stays above the June low of $114.64. The stock closed at $135.60 on August 16, so a drop below $135 is a signal to get out.
ING Greop N.V. (ING) is in a downtrend since it peaked at $17.44 back in June of 2015. Starting in March 2016, the stock price has been rejected by a descending trendline currently intersecting at $12.25. The stock closed at $11.77 on August 16, in the vicinity of that resistance region. Given the long-term downtrend and this resistance level, it may be time to sell ING. If the stock does sell off at resistance again the downside price target is the $9 region, just below the June low of $9.26. If the price rallies above the June 23 swing high of $12.56, that would break the resistance/trendline and open up the possibility of further upside. For a buying opportunity to develop, ideally the price should run above $13.25. If that occurs the trend has likely shifted, and pullbacks that stall out above the June low become buying opportunities within the new (likely) uptrend.
First Data Corporation (FDC) is moving into a series of resistance levels by closing at $13.29 on August 16. The resistance area is between $14.25 and $13.41, established by a number of swing highs going back to March. Since March the price has also made three lower swing lows in a row, indicating that selling pressure is still present. That selling pressure will be on trader’s minds unless the price can climb above $14.25. Below $14.25 remains a sell zone, with the expectation that the price will continue to make lower lows, putting a price target at $9.50. That target is below the June swing low of $9.90, but above the February low of $8.37. If the price does break above the top of the resistance area at $14.25, the trend has likely shifted to the upside. The next pullback (to the downside) in that case presents a buying opportunity, potentially along a rising trendline connecting the February and June lows.
The Bottom Line
Resistance levels are areas the price has struggled to move above in the past. While a stock can rally above resistance at any time, it is often a good place to sell—especially within a longer-term downtrend—as the stock has shown a tendency to decline off these levels. Short sellers also can watch resistance levels for opportunities to enter a trade in anticipation of the price decline.
Disclosure: The author doesn’t have positions in any of the stocks mentioned.
Sell These Stocks Near Resistance
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