Support and Resistance – Pattern 2
Support – a price level where FALLING prices can be expected to pause or even reverse back up.
Adobe Software finds support near $38 in the middle of June – right at the same price level from the previous month.
Resistance – a price level where RISING prices can be expected to pause or even reverse back down.
Qlogic Corp finds resistance near the $130 level early in December and quickly turns back down.
Broken support can be expected to act as resistance on a subsequent rally.
Cisco Systems found support near $59 in August and September. By late September, price dropped below support. By mid-October, the price rallied back up previous support, which then became resistance to any more upside.
Broken resistance levels can be expected to act as support on a subsequent decline.
Walgreen breaks above previous resistance in mid-November, then finds support, not once, but twice after that near $26.
The decisiveness of the break through support and resistance is important.
The power in this pattern is when support changes to resistance or resistance becomes support. Once that occurs, you can patiently wait for the price to come back to that broken level, then position yourself accordingly.
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