Tara Dziedzic is a Managing Director in Global Corporate Client Group at NYSE Euronext. She is responsible for managing relationships of the...
Why resist being happy!? We are in the thick of earnings season and the positive momentum is moving along. The Dow rose above 12,000 for the first time since June 2008, and the S&P 500 closed at a 29-month high…followed by a momentous break through the 1,300 mark. Jubilee!
What is “Resistance” and why does it matter? Support and Resistance is the basis of most technical analysis chart patterns - - whether you trade the indices, commodity futures, options or stocks.
Resistance: Looks like “The Top” of the mountain peaks on a historical price chart. The Resistance is the (higher) price level that has the ability to hold trading below. Resistance is a graphed horizontal line drawn on a chart that coincides with multiple historical highs or significant price levels. When trading shoots above the Resistance level, we often see momentum trading driving the price higher.
Support: Appears as the “The Bottom” of the valleys on a historical price chart. The support is the (lower) price level that shows significant ability to hold trading above. Support is a graphed horizontal line drawn on a chart that coincides with multiple historical lows or significant price levels. When trading falls below the Support level, we often see momentum driving the price even lower. Sad, but true.
When focusing on technical analysis, remember that most technical indicators are lagging events (i.e. conveying information events in the past). The primary goals of technical analysis are:
1. Understanding what the broad investing public is thinking.
2. Finding reliable historic indicators of what has transpired to speculate or gather insight into what could happen in the future.
When utilizing technical analysis, these indicators are often "self fulfilling prophecies" - enough people are watching (and acting on) the same information, so low and behold, the event occurs.
That is precisely why resistance matters.
P.S. NYC is COVERED in beautiful white snow. Though my fair city will look like an ashtray by the time I leave the office, it resembles mountain peaks right now J