Shares of Taiwan Semiconductor Manufacturing Company Limited TSM are trading higher after the company reported earnings that beat expectations.

Many analysts overthink the markets and make things more complicated than necessary. They forget that markets are driven by supply and demand.

If there isn’t enough supply of shares for sale, buyers cannot fulfill their buy orders or meet their demand. As a result, they may have no choice but to offer successively higher prices to attract sellers into the market.

This trading action forces the shares into an uptrend.

When a stock reaches a resistance level, the dynamic changes. There is more than enough supply (sell orders) than there is demand (buy orders). Investors and traders can buy all the shares they need without driving the price any higher.

Sometimes stocks reverse and head lower after reaching resistance. This happens when some of the people who wish to sell become concerned that other sellers will undercut them. They know that the buyers will go to whoever is willing to sell at the lowest price.

So, these concerned sellers reduce the prices at which they are willing to sell. Other concerned sellers see this and do the same thing. This can result in a snowball effect that pushes the price lower.

Read Also: Netflix Earnings Are Imminent; These Most Accurate Analysts Revise Forecasts Ahead Of Earnings Call

But sometimes when a stock reaches resistance, the buyers overpower the sellers and push the price higher. Traders refer to this as a breakout. And as you can see on the chart, Tawain Semi appears to be breaking out.

Breakouts can illustrate an important dynamic. If the price is higher than the resistance level, it means that the traders and investors who created the resistance with their sell orders have canceled or completed their orders.

Regardless, they have left the market.

With this large amount of supply out of the way, the market will be out of equilibrium. The buyers will again be forced to push the price higher if they want to acquire shares.

This means Taiwan Semi may be entering a new uptrend.

Read Next:

Photo: Shutterstock