Stock Of The Day: Will The Rocket Companies Breakout Hold?

Rocket Companies, Inc. (NYSE:RKT) shares are consolidating on Monday. They rallied more than 10% Friday. The move came after President Trump outlined a plan to buy mortgage bonds. This could make homeownership more affordable.

Now, traders and investors are watching to see whether the rally will hold and continue. This is why we have made Rocket Companies our Stock of the Day.

Rocket broke out on Friday.

A breakout occurs when a stock clears a resistance level.  Resistance is a price level or a narrow price range where there is strong selling interest or a large number of shares for sale. Stocks often reverse and decline after reaching resistance.

As shown in the chart below, there was resistance for Rocket at around $21.65. It reversed and headed lower after reaching this level in September.

If a breakout occurs, it means that the traders and investors who created the resistance with their sell orders have either finished or canceled their orders.

This can be a bullish dynamic because, with sellers gone, buyers will need to be willing to pay premiums to acquire shares. This can force the price up.

Sometimes, after a breakout, a small reversal or reversion can occur. When this happens, traders look to see whether the price that had been resistance becomes support. This could set the stage for a move higher.

As shown in the chart, this occurred at around $13.25 and $15.65.

Resistance levels can become support levels due to remorseful or regretful sellers. These are people who sold shares at the resistance and later regretted it when the resistance broke.

Several of them have vowed to repurchase their shares if they can do so at the price they were sold for. When Rocket fell back to what had been resistance, they placed buy orders. These orders created support.

If the stock reverses on some profit-taking, traders will be watching to see if the same thing occurs around the $21.65 level. If it does, it may be a setup for a move higher.

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