Stock Of The Day: Confirmed Breakout For Vistra Corp?

There is some profit-taking in Vistra Corp. (NYSE:VST) on Thursday. Many traders are watching the stock to see if there will be confirmation of a breakout.

Check out the current price of VST stock here.

Breakouts can be difficult to identify while they are occurring. This is why it is our Stock of the Day.

A breakout occurs when a stock trades and holds above a resistance level. Resistance is a large group of traders and investors who are trying to sell at, or close to, the same price. If a stock gets above resistance, it means the traders and investors who created the resistance with their sell orders are gone.

They have either finished or canceled their orders.

With this large number of sellers out of the market, the stage could be set for a move higher. Buyers will need to outbid each other to draw sellers back into the market. This could force the stock into an uptrend.

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Sometimes it appears a stock is breaking out, but it quickly reverses and closes back below the resistance. Traders call this a bull trap or false breakout.

One way traders can gain insight into the validity of a breakout is to look for the conversion of what had been a resistance level into a support level. As you can see on the chart of Vistra, since May, each time resistance was broken, it converted into support.

This dynamic set the stage for the next leg of the uptrend.

Resistance turns into support because of remorseful sellers. Some of the people who sold their shares at resistance came to regret doing so when the resistance broke and the price moved higher.

A number decided to buy their shares back. But they would only do so if they could get them for the same price they were sold.

As a result, if the price drops back to what had been the level of resistance, they place buy orders. If there is a large amount of these orders, it will form support.

You can see on the chart that Vistra may have broken the resistance around $198. If this level now turns into support, another move higher may follow.

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