STOCK GOODIES PLAYS OF THE WEEK

[Black_NITE]

Methods to Establish Support and Resistance?

Support and resistance are like mirror images and have many common characteristics.

Highs and Lows

Support can be established with the previous reaction lows. Resistance can be established by using the previous reaction highs.



The above chart for Halliburton (HAL) shows a large trading range between Dec-99 and Mar-00. Support was established with the October low around 33. In December, the stock returned to support in the mid-thirties and formed a low around 34. Finally, in February the stock again returned to the support scene and formed a low around 33 1/2.

After each bounce off support, the stock traded all the way up to resistance. Resistance was first established by the September support break at 42.5. After a support level is broken, it can turn into a resistance level. From the October lows, the stock advanced to the new support-turned-resistance level around 42.5. When the stock failed to advance past 42.5, the resistance level was confirmed. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.