Carnival Corporation & plc (CCL) shares are drifting sideways Monday after a strong Friday session that saw the stock gain nearly 10% on upbeat guidance. The cruise line operator blew through a resistance level around $30, but there's a good chance the party might not last much longer.
If the rally continues, watch the $32.50 level closely. That's where things could get interesting, and possibly where the uptrend hits a ceiling. Back in September, $32.50 acted as resistance, and here's the thing about old resistance levels: they have a funny habit of becoming resistance again.
The Psychology of Resistance
Understanding why this happens requires a quick dive into investor psychology. When a stock hits a resistance level, reverses course, and trends lower, the people who bought at the top feel regret. They think they made a mistake, and they're not happy about it.
Many of these disappointed investors hold onto their losing positions, telling themselves they'll sell if the stock just gets back to breakeven. It's human nature. Nobody likes admitting defeat or locking in a loss.
So when shares rally back up to that same level, these regretful buyers suddenly become eager sellers. They place their sell orders, hoping to escape at breakeven. If enough of these orders pile up, boom: you've got resistance forming at that level all over again.
Breaking Through $30
Carnival had resistance around $30 in October, but Friday's surge on positive guidance sent shares blasting right through it. That's a bullish sign, no question. The upbeat outlook clearly gave investors confidence to push past a level that had previously caused trouble.
But if the uptrend keeps going, the next test comes around $32.50. As the chart shows, this price point created resistance in September. Those remorseful buyers who purchased shares back then will likely enter the market as sellers if the stock approaches that level again.
What Happens Next?
If there's a large concentration of sell orders waiting at $32.50, resistance will likely form there again. The rally could stall out, or even end entirely. A reversal wouldn't be surprising.
Stocks eventually break through resistance levels when some sellers become impatient. They start lowering their asking prices, other sellers follow suit, and the price drifts lower. It's a gradual process of sellers giving up on their target exit price.
Traders will be watching Carnival closely if it climbs back to $32.50. It could prove to be an important crossroad for the stock, determining whether this rally has more room to run or whether it's time for investors to disembark.