Stock Of The Day: How High Will USA Rare Earth Go?

USA Rare Earth, Inc. (NASDAQ:USAR) shares are trading much higher on Monday after the Trump administration confirmed a $1.6 billion investment in the company.

The rally may have room to run, but if it reaches levels around $40, it may encounter resistance. As you can see on the chart, the October peak, and stocks tend to run into resistance at former peaks. This is why USA Rare Earth is the Stock of the Day.

Resistance can form around previously broken support levels due to remorseful or regretful buyers. These are people who bought shares at the peak and became disappointed when the price fell.

Some of them decide to hold onto their losing positions. But they also decided to sell at breakeven if they could.

So if the shares eventually return to the previous peak's level, they place sell orders. And if there are enough of these orders, it will create resistance at the level again.

This means USA Rare Earth may encounter resistance if it gets back to $40.

Some things concerning trading are counterintuitive. For example, successful traders buy stocks when they are moving higher. Unsuccessful traders buy stocks just because they are down. They often get run over when prices keep dropping.

Successful traders sell stocks when they are headed lower. Unsuccessful traders sell stocks just because they are higher. Then they miss out on profits if the shares keep rising.

The Relative Strength Momentum Indicator (RSI) is on the lower part of the chart. If the blue line is above the upper red horizontal line, the stock is considered to be overbought.

A potential exit strategy for overbought stocks is to sell when the RSI line turns lower. This shows the buying pressure is subsiding.

The RSI lined turned lower on October 14, and this was a good time to sell. The same dynamics may soon occur again.

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