An observational theory stating that in certain stocks at certain times, there is a buildup of selling pressure. This occurs as a combined result of sales and a strong wish to sell among those who still hold the stock but fear that selling it may cause further declines. Depending on the overall liquidity in the stock, a market overhang can last for weeks, months or longer. Market overhang usually relates to trading in one security but can also apply to larger areas of the market, such as an entire sector.
Taobiz explains Market Overhang
Market overhang is most often felt and created by institutional investors, who may have a large block of shares they wish to sell and are aware of high selling interest across the market for the stock. Another scenario arises when a large shareholder is thought to be looking at selling his or her stake. This creates an overhang in the stock, which prevents investors from buying the stock until the large shareholder is done selling his stake. Market overhang can also develop in a poorly-performing IPO when the lockup period ends and insiders look to unload their recently-acquired shares.
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