V. 22:6 (90-91): Charting The Market by David Penn

V. 22:6 (90-91): Charting The Market by David Penn

SUPPORT AND RESISTANCE

Among the first things anyone who studies technical analysis learns is the role that support and resistance play in market price action. Why does a collapse in the price of cattle futures abruptly end and suspend in place, as if tethered by an invisible string? Why does a breakout in a stock occasionally stop dead in its tracks as if it hit a brick wall and refuse to move higher? Often, the answers to these questions are support and resistance, respectively.

And while there are some technical analysts (to say nothing of most fundamental analysts) who think both support and resistance are overrated characteristics of price action (“How many times,” they ask support and resistance believers, “has a stock plunged through an alleged support level as if it were not even there? How many times has a stock smashed through an alleged resistance level as if that level had the consistency of wet tissue?”), enough traders and investors see prices skid to a halt when encountering a trendline, moving average, Fibonacci retracement level, pivot point, or some other market phenomenon to keep the concepts of support and resistance at the forefront of any technical discussion of price movement in the marketplace.