Support and resistance in technical analysis typically refers to a price of stock, commodity, and similar investment tools that becomes a stopping point. The support is the low point of the trading range and the resistance is the top.
What causes a stock or other investment tool to find a support and resistance? Support is the point where buyers exceed sellers. Resistance is the point where sellers exceed buyers. Basically support and resistance is the tug a war between the bulls and bears. Some say that the winner is typically the one who convinces the long term investors to follow them.
Currently the bulls have made a stand at 6500 on the Dow Industrial and the bears have made theirs at about 8000. Over the past two months there have been several reports citing the lack of the individual investor participation. Consumer confidence released Tuesday April 28th, 2009 has shown that Main Street is starting to feel more confident about the future, but their current situation is rather unchanged.
So it would appear we are at a tipping point. I would assume if Main Street starts to see a more measurable improvement in their current financial situation the bulls could win the war. If Main Street current financial situation either stagnates or gets worse than the bears would probably win. So what if the bulls or the bears win this one, who will win the next one?
Support and resistance is all about expectations. If you are a bull and expectation are exceeded, then the market will move your way. If you are a Bear and expectation are missed, then the market will probably move in your direction. High expectations are negative for bulls, since they are harder to exceed. Low expectations are negative for Bears, since they are harder to miss. What are you expectations?
