As the markets continue to decline, especially the NASDAQ, more and more
stocks are breaking support. The rally of last week looks more like real
window dressing than any new buying.
Many stocks are hitting 52 week lows.
Each old support, as it is broken, is met with a new round of selling.
Support and Resistance
Think of security prices as a war. It is a battle between a bull (the
buyer) and a bear (the seller). The bulls push prices higher and the bears
push prices lower. A buyer that feels an area has good value, will buy at
that level. The seller that feels that a stock has reached fair value, will
sell at that higher fair value price. The direction prices actually move
reveals who is winning the battle.
Remember when a trade takes place, a buyer and seller agreed to a price.
There was a buyer and a seller involved in the transaction. The buyer feels
the stock will go up. The seller wants to move on to another stock that he
may feel will appreciate faster.
Support levels are the price where the majority of traders feel the value is
a good buy.
Resistance is the level in which the majority of traders feel prices will
When the majority of traders and investors change their expectations, these
support and resistance areas get violated and a new trend may be beginning.
This can occur due to changes in expectation of earnings, new product
development, change of personnel, cut backs or expansions.
Lets look at VerticalNet Inc.
Here is an example of a stock that keeps breaking support.
A rally last week from its lows seems like it will be tested in the morning.
I would exit any longs in VERT on any morning weakness.
An aggressive trader may want to consider a short here.
If shorted at this level, I would place my stop at 32 ½.
Yes, stocks can still go lower!