Trading in Hewlett Packard Enterprise Company (NYSE:HPE) is quiet on Wednesday. This comes after yesterday's gain of more than 5%. The move was driven by news that activist fund Elliot Investment Management has invested more than $1.5 billion in Hewlett.
There is a chance that the stock continues to move higher. Yesterday's rally may have made the shares ‘breakout' above a resistance level. This is why we have made it our Stock of the Day.
In the financial markets, there is a tendency for price levels that had been support to convert or turn into resistance levels. As you can see on the chart below, this was the case for the $16.40 level for Hewett. It was at a support level in August and September, and then it became a resistance level in March.
This price action occurs due to ‘buyer's remorse'.
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There were people who purchased shares around $16.40 who thought their decision to do so was a good one when the stock rallied after. But when the support broke in March and the price moved lower, some of these traders and investors came to regret their decision to buy.
Some of them decided to hold on to their losing positions. But they also decided that if they could eventually sell their shares at breakeven, they would. As a result, when Hewlett rallied back to this price they placed sell orders.
There were so many of these sell orders that it caused resistance to form at the price that had previously been support.
You can see on the chart that the $14.50 level had been support in November 2023 and January 2024. It was also support in March. After this support was broken and the shares reversed back up to $14.50, it converted into resistance like the $16.40 level did.
But yesterday's move appears to have broken this resistance.
Resistance breaking can be a bullish dynamic. It shows that the people who formed the resistance with their sell orders have either finished or canceled.
With this large amount of sellers or supply out of the market, buyers may be forced to pay premiums and outbid each other to draw sellers back in. This could result in Hewett continuing to move higher.
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