The J.M. Smucker Company (NYSE:SJM) is trading sideways on Thursday. The shares have gained more than 12% in two days after a strong earnings report. But the move higher may be over. The shares are overbought and at resistance. This is why the food and beverage manufacturer is our Stock of the Day.
‘Sell at former tops' is an old Wall Street saying. It's not fiction. It refers to a common market dynamic.
Stocks tend to hit resistance when they reach levels that had previously been tops or peaks. As you can see on the chart, J.M. Smucker hit resistance yesterday around the $117 level.
Smucker’s Buyer's Remorse?
There are people who bought shares around $117 who regretted their decision to do so when the price fell after. A number of them decided to hold onto their losing position.
Some of them also decided that if they could eventually do so, they would exit their positions at breakeven. So when the stock rallied back to around $117 yesterday, they placed sell orders. These orders formed resistance at the level again.
J.M. Smucker, also known as Smucker’s, is also overbought. This means the stock is above its typical trading range.
This dynamic will draw sellers into the market. They will be anticipating a reversal and move lower back into the range.
Their selling could put downward pressure on the shares.
Sometimes stocks reverse and head lower after they reach resistance. This happens when some of the sellers who created the resistance become impatient.
They are concerned that other sellers will undercut their prices. As a result, they reduce their offer prices. Other impatient sellers see this and reduce their prices as well. It results in a snowball effect that forces the shares into a downtrend.
Being overbought while at resistance can be a bearish dynamic. The rally in J.M. Smucker may be over.
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