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 has won 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.
One interesting pattern that traders see after a breakout, is that the stock
or index retraces a part of the initial move by about 50%. If the 50%
retracement does not hold, the stock or index can still be in a trend if the
previous breakout resistance holds.
Let's look at Broadvision Inc. (NASDAQ: BVSN).
In this example is a stock that is making new 3-week highs.
BVSN moved now from a June high of 63 to a low of 27 just 10 days ago.
Since hitting this low, BVSN has been in a consolidation pattern with one
fake break on August 17 only to drop back in the trading range.
Today, August 30, 2000, it looks like BVSN is attempting another breakout of
a consolidation range.
I would Buy BVSN on an unchanged or up opening.
I would place a stop at 33 �.
