How to Find Entry Points as Overhead Resistance Grows
The bounce is attracting sellers, but there are some signs of FOMO developing.
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Market participants didn't wait long before selling into the early strength on Wednesday. All the indices were off their early highs but are regrouping for a further try. Breadth is running slightly positive and improving.
Interestingly, there are 70 new 12-month highs to just 60 new lows, which is mild action that reflects stocks seeing high levels of volatility within trading ranges rather than a broad breakdown. The bounce on Wednesday is keeping the new lows suppressed but it is not generating the kind of buying conviction that would suggest that a meaningful low is in place.
Overhead Resistance and Stockholder Trap
After a period of extreme stress, as we have seen recently, there is typically a large supply of what I call "stuckholders," investors who are relieved just to escape positions with slightly smaller losses.
That is what the technical term "overhead resistance" is all about. When someone watches a carefully chosen stock suddenly drop, they are not thinking about upside potential anymore. They are thinking about getting back to even. If the stock bounces back toward their cost basis, they are happy to sell it and move on without any significant financial damage.
That emotion is the driving force when the market tries to bounce back after a sharp decline. In this particular case, many investors are more anxious than usual, given the geopolitical uncertainty and the ongoing AI disruption, so they were quick to sell into the opening strength. There is still very little appetite for bottom fishing when the news flow remains this unpredictable.
The one constructive thing about bounces after a big drop is that they give us technical levels to work with. Those recent lows become natural reference points. If you want to begin probing for entry points, the approach is to identify those levels and use them as tight stops. You are not betting on a recovery. You are creating a defined risk situation where you know exactly where you are wrong.
BridgeBio Pharma: On the Radar
One stock that fits this framework is BridgeBio Pharma (BBIO) . It was a big winner over the past year, running from the 20s to the 80s on strong fundamentals. It fell hard recently despite the good news, which is exactly the kind of innocent-victim pattern worth paying attention to. Several analysts have recently raised their price targets and the average sits around $100. The company is turning profitable and has a strong pipeline. The thesis is intact. The price action has been poor.
The chart shows a stock that ran hard, hit two separate pieces of bad news including a sell-the-news reaction to good data and then mixed earnings, and is now sitting just above horizontal support near $63. The 200-day moving average is rising from below around $53 and provides a secondary backstop if that first support level fails. That structure defines the risk reasonably well for a patient buyer willing to wait for the right entry.
Rather than buying right at support, I would rather wait for a failure that shakes out the remaining nervous holders and triggers the obvious stops. That kind of flush often creates a cleaner entry than buying into what looks like support but has not proven itself under pressure. It requires careful management in the event that downside momentum builds, but with the valuation and analyst support behind it the stock is unlikely to become a bottomless pit.
I have BBIO on my radar and will continue to watch it closely but will resist the temptation to act until there is further development.
Waiting for Better Odds
There are many variations of this chart pattern across the market right now. In nearly every case, the timing is not quite right. While it is possible that the market and individual stocks go straight up from here it is not the highest probability outcome and it is a risky bet to make at this stage. The better approach is to identify what you want to own, understand why you want to own it and wait for the entry that gives you a genuine edge rather than forcing a position because the stock looks cheaper than it did last week.
I want better odds. So I'll watch and wait and see what develops.
At the time of publication, DePorre was long BBIO.
