Lockheed Martin Corporation (NYSE:LMT) shares are little changed on Friday. They have gained more than 10% since President Donald Trump proposed large increases in defense spending.
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But the rally may soon pause or even end.
Lockheed is overbought and approaching resistance. These dynamics could put a top on the shares. This is why it is the Stock of the Day.
Some people believe that stocks move because of their fundamentals, such as PE and PS ratios. Sometimes they do, but at other times, the price of a stock can be influenced by psychology and emotions.
For example, you can see on the chart that Lockheed was in a downtrend last February. This trend ended when the shares reached the $405 level. Then they reversed and rallied.
When the shares fell back to $405 in July, they found support again. This was because of emotions and psychology.
Some of the people who sold around $405 decided they made a mistake when the price moved higher. They also decided to buy their shares back if they could eventually do so at the selling price.
These people placed buy orders around $405 in July, and this created support.
The mirror image could happen at resistance levels. Some people who bought Lockheed for around $595 in October 2024 regretted doing so ever since.
They have held their losing positions, but if the stock returns to the $595 level, these unhappy buyers will have a chance to exit their positions at breakeven. They will place sell orders.
If there is a large number of these sell orders, it could result in creating resistance at the level again. This could put a ceiling on the price.
Successful traders know that things such as earnings can move the price of a stock. But they also understand how important emotions are in the market. They understand that support can stay intact due to seller’s remorse, and resistance can stay intact because of buyer’s remorse.
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