Stock Of The Day: Chart Of Aaron's Holding Company Teaches Important Lessons

There’s an old saying on Wall Street - "Gaps refill." It’s true, and it can be seen on the chart of Aaron’s Holdings Company, Inc. AAN.
In this article, we will explain why it’s true and why it happens.

An important dynamic in the financial markets is price levels that had previously been support converting into resistance. This occurs due to buyer’s remorse.

People buy, and then regret doing so if the price falls below the price they paid. Some decide to get out if the price rises back to their entry level, and they can sell at breakeven.
As a result, if the stock rallies back up to their buy price, they place sell orders at that level. If there are enough sell orders, it will cause resistance to form at the price that had been support.

This can be seen on the chart. The $11.80 level acted as support in August 2023. Then it was resistance in December 2023.

Another important market dynamic is price levels that had been resistance turning into support. This can also be seen on the chart as $10.80 was resistance in September 2023, then it became support the following January.

This happens because of sellers' remorse. Some investors and traders regret selling if the price moves higher. A number of them vow to buy their shares back, but only if they can get them for the same price at which they were sold.

So, they place buy orders at a price that had been resistance. If there are enough of these buy orders it will turn the price that was resistance into support.

A "gap" occurs when a stock closes at one price, and then opens the next day at a different one. There is no trading at the levels between these two prices. As a result, there are no traders or investors who bought or sold within this range. This means there won’t be remorseful buyers or sellers trying to sell or buy their shares back.

So, if a stock gaps through price levels going one way and then eventually reverses and gets back to those same levels going in the opposite direction, there’s a tendency to move back through them rapidly because of the lack of buy or sell interest.

This would cause the gap to "refill."

In April 2023 AAN gapped from $10.22 to $12.25. As you can see on the chart, this gap was filled the following August.

In October 2023, shares gapped down from $8.89 to $7.28. The stock reversed and refilled this gap in November.

There are a lot of sayings on Wall Street, "gaps refill" is one of them and it’s true

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Image created using artificial intelligence via Midjourney.