Analyzing Closing Price

• A stock’s closing price can be compared to the previous day’s closing price, the day’s opening price and, in some instances, to the day’s trading range – the high and the low prices. A stock is said to close up, or higher, when it closes above the previous day’s close; a stock is said to close down, or lower, when it closes below the previous day’s close. A stock that had a wide range between the high and the low price indicates investor nervousness and market uncertainty. A close in the upper half of a day’s price range suggests strength; a close in the lower half of a day’s price range suggests weakness.
  
  

Short-Term Sentiment Indicator

• How a stock opens for trading often reflects investor reaction to the news that accumulated overnight, after the stock market closed the previous day. How a stock closes indicates how investors feel about its prospects after factoring in the news and market action. Many professional investors finalize their stock positions in the last hour of trading, so a stock’s closing up indicates bullishness, while closing down indicates bearishness. A stock’s closing at the top of its daily trading range indicates extreme bullishness, while closing at the bottom of its daily trading range indicates extreme bearishness.
  
  

Technical Analysis

• A stock’s closing price confirms a trend. Daily prices can fluctuate due to a multitude of short-term factors, but longer term a rising stock tends to close higher more often than lower, and vice versa for declining stocks. In addition, a rising stock tends to close in the upper half of its daily trading range more often than in the lower half; a declining stock tends to close in the lower half of its daily trading range more often. Closing prices are often used in conjunction with a stock’s moving averages. For example, it is considered normal for a stock to dip below a 50-day moving average line during the day, but a close below that line is often interpreted as a warning sign that requires further scrutiny.
  
  

Short-Term Trading

• Opening and closing prices can be compared to each other interchangeably: first the closing price is compared with the day’s opening price, then the opening price is compared with the previous day’s closing price. Experienced traders can use such comparisons for more sophisticated analysis. For example: A stock gaps up at the open -- opens at a price much higher than the previous day’s closing price, with no trades in-between -- in response to good news released outside regular trading hours. The gap up suggests investor enthusiasm and bullishness. But then the stock begins to sag and closes in the lower half of its daily range, perhaps even below where it opened. Even though the stock closed higher on the day due to the gap up, the close in the lower half of the day’s trading range suggests mounting selling pressure and a possible short-term top.