A Crash Course on Reading the Markets
Stocks are at THE line… but can they break it?
Allow me to explain.
Markets are dynamic entities. If you take a step back and look at price charts more frequently, you start to see certain patterns emerge. And those patterns can serve as guides to major trends and opportunities.
One such pattern that you need to know about is the line I referred to before – called “resistance.”
Resistance is a particular price level that stocks struggle to break above.
From a supply and demand perspective, resistance represents a level at which buying demand struggles to overcome selling pressure. As a result, this level acts as “resistance” to a rally.
Let me give you an example.
Waiting for Buyers to Overcome Resistance
The S&P 500 currently faces a lot of overhead resistance at 2,930. I’ve drawn that level on the chart below.
As you can see, the market has attempted to break above this level on three separate days in the last two weeks. Every time, it’s failed to do so.
If stocks are able to break above this level this week, it means much larger gains are on deck.
And in reality, when you extend this line it actually runs back to the original bounce stocks staged following the first leg down during the March meltdown.
Now we can see why this level is so important. This is the level at which buyers originally stepped in to stop the market meltdown in March, triggering a bounce.
That same idea is now working in reverse – this is the level at which sellers are stepping in and taking profits.
If buyers/bulls can overcome this selling pressure, we’ll get a breakout and stocks will erupt higher.
As I stated at the beginning of this piece, the markets are dynamic. If you learn how to read them, they can tell you a lot about what’s really going on with investors.
Editor, Money & Crisis