The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Also, you must realize that as with all trading strategies, opinions can
change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set ups, and
examples of entry and exit strategies.
Support and Resistance
Think of security prices as a war. It is a battle between a bull (the
buyer) and a bear (the seller). The bulls push prices higher and the bears
push prices lower. A buyer that feels an area has good value, will buy at
that level. The seller that feels that a stock has reached fair value, will
sell at that higher fair value price. The direction prices actually move
reveals who is winning the battle.
Remember when a trade takes place, a buyer and seller agreed to a price.
There was a buyer and a seller involved in the transaction. The buyer feels
the stock will go up. The seller wants to move on to another stock that he
may feel will appreciate faster.
Support levels are the price where the majority of traders feel the value
is a good buy.
Resistance is the level in which the majority of traders feel prices will
move lower.
When the majority of traders and investors change their expectations, these
support and resistance areas get violated and a new trend may be beginning.
This can occur due to changes in expectation of earnings, new product
development, change of personnel, cut backs or expansions.
Let's look at MCI Worldcom, WCOM
For the last couple of weeks, WCOM has been trading between 89 and 91.
This is a good example of a defined Support and resistance.
Buyers feel 89 is a good value and sellers are willing to sell at 91.
If the Bulls can take control, WCOM would have broken above 91.
Today, July 20, 1999, it looks like the Bears took control as WCOM broke
below 89.
I would exit longs in WCOM.
An aggressive trader may want to Short WCOM here.
I would place a stop at 90 1/2.
