I want to cover a handful ofdifferent charts for you and discuss a little bit more aboutresistance.
What resistance mean?We’ve had a lot of bouncesin the past after major sell-off. Youget a nice big pop and bounce.
How do I lookat resistance? What should you bethinking about as stocks get intoresistance? Just the overall concept of astock stalling out.
Why is it important tolook at charts for resistance?
Resistance is a placewhere problems occur.There’s always turmoil thathappens in the marketplace; there are theBulls and the Bears that are fighting.
It’s kind of like a chess game that’salways going back and forth, andsometimes a piece gets taken off-white, and other times the piece receives taken offblack. There’s this back-and-forththat happens.
Naturally speaking, the tendencyof a human being after they’re born, they grow up, age, and eventually die. That’s the natural cycle and tendencies.
If we look at stocks, the natural tendency of stock does they inflate. Prices keep inflating. The gasused to be 59 cents a gallon to$1.20 to $3 a gallon.
It continues to inflate with timebecause the value of money remains tokind of rise up in a way that you haveto pay more for things and goods. This iswhat inflation does. It’s just thenatural tendency of money because itjust becomes worth kind of less and lessover time.
It’s a fiat currency. You can’tdo much with itbesides burn it and make fire.
When it comes to the stockmarket, the natural tendency of stockprices is to go up. This is why thetypical buy-and-hold approach works.
When you want apeace of mind, buy some dividendstocks. Let them sit and in a wayforget them and accumulate things.
It’s in the problem areas where you take some profits. This iswhy it’s good to look at resistance. It comes down to wherethings are struggling, where things arestalling.
For example, you getto your college years; youstart struggling a little more with yourtests. Maybe you get into your elder retirement years, and you strugglea little more financially. With stocks,it’s no different.
As a car gets into a particular area with its speed, it strugglesto go beyond that level.
Withstocks, we get the same kind of concept. They’ve pushed that gas pedal so fast that eventually, it runs outof gas just like any machine would.
You need people to constantly be buyingthings for a stock price to keep goinghigher.
If we take a look at Apple, notice that we’ve hadthis sell-off from mid-April.
We had a major rise up from 160 to 170, 170 to 180, 180 to 190 and then the stockstalls out.
We had resistance at 190.
Now we got the next little flood of gas. Another little push to 193, 194, 195 level. But again it’sstalling out a little bit.
When you push thegas hard, eventually thingswill stall out. The further you pushthat gas pedal, the more you should betaking off profits in the strength.
Now,this is a daily chart from May to June. Within justabout 11 to 12 days, wewent up 17% in Apple stock. That’samazing and remarkable.
If you can dothat, you should betaking some off from the strength as you getinto some digestion, even if it’s half. Eventually, add that half back insometime in the future.
That’s the way you think about it. As weget into resistance levels, it’s a goodtime that takes them off becauseeventually, stocks will come back.
Takea look at our sidewayspattern from January to May. We got intothis level of resistance, we got intothese higher prices, around March inApple. When you get into this higherprice level, you start creating a littlebit of turmoil. This is where youtake some profits.
Eventually, you gotthat pull back to that 165 level. This is where you could add some.
Again,we get back into it, resistance – takesthem off, come back into support and youcan add some for that stock to continuemoving higher.
You don’t know thatit’s always going to go ahead and rejectthat resistance. Sometimes it breaksthrough like we did here in May and itcontinued to move higher.
That’sentirely okay then you wait for thenext pullback.
You can do this on adaily timeframe. You could do it more ona weekly timetable.
It just comesdown on your perspective. Your timehorizon. How long you’re looking toinvest in.
Overall resistance is aplace to take some profits because thisis where stocks start rejecting andpulling back. It’s a good time tocover this because there’s a lot ofstocks right now that are inresistance, especially today.
You couldsee at the 1700 level on Amazon we’re hitting someresistance. This could be just minorresistance, but it’s resistance.
Many of these stocks, when youtake a look at them, they are at somecritical points where you could get apretty significant pullback.
Youmight only get a single pullback, but you haveto wait to see if this accelerates to know if it’sgoing to be a small pullback or a majorpullback.
The more times it kind ofhits resistance, the morechance or probabilities that it willbreak to the upside or reject itnastily.
Often, when it hangsand lingers at those highs or thetops for a while, chances are it’llbreak through.
But right now as you’renoticing a few of these stocks, they’reright atresistance. You can see with ahandful of these stocks, they’reall at aconsolidation area, and they’re cominginto resistance.
How do you spot thisresistance? How do you know it’s going tohappen?
Three simple ways to recognize resistance:
- Look at some sideways action and look at some high swings where they got rejected in the past. – as we approach those, you’re kind of aware and prepare for that as well.
- Look at the whole numbers.
- Being stretched from an oversold situation. Here we are oversold. Wecounter-trend bounce. We had a majorbounce, and now you’re starting to rejectthings.
Those are threesimple ways. Of course, there are many otherways, but this is a way to seewhere resistance is and where it is coming from.
The first one is looking at thepast a swing points where it rejected. Then, looking at some whole numbers. Looking at how far and elevated that move is from there.
For some of theadvanced people – those that have been with mefor a while – you’re looking at a reductionof volume.
As volume starts to dry up, that also begins to put pressure onstocks because you’re reducinggas on the gas pedal.
You can seeright here why we’re getting a 2%pullback in Facebook. But then, when you look at it, if you getanother day that’s significant down date, youcould take out about a month’s worth ofgains in one or two days. Imagine that.
That’s definitely where things get alittle scarier.
You can see hereGoogle. 1150, nice wholenumber. You can also draw thisacross our swing point, that we’vetalked about. You look atthe steepness or that angle, how fast itmoved. Now that we have rejection, youcan see there what’s happening andwhat’s going on. That’s really whatyou’re looking at.
As far as identifyingsome resistance levels, let’s take a lookat Johnson & Johnson.
We got intoa swing point. We got into it.We even broke above it so you could seesometimes you get a break above it. As Ialways like to say, does your friendalways show up at 6 o’clock for dinner?Not necessarily. Sometimes it’s 5:55,sometimes it’s 6:03. It’s not till 6o’clock on the dot.
If some stocks break a littlehigher, they fake you out, and then theyget that massive lower movement.
Here’s our swing point. When you look at where thisrejected, it was almost 150, was 148. Our other resistance was rightaround 145.
Whole numbers didn’t applyhere much, but when you lookat the steepness of the angle, you couldsee here was our initial upward trend in2017.
If you look at a long-term trend,that’s a little more healthy. You’re looking at maybe a 30/25 degreeangle. That’s more logical and realistic.
The more days that yousee in one direction, the more likelyit’ll snap back in the other direction.
You’ll see some of thesethat are hit the hardest are the oneswhere they’re hitting key resistancelevels from the past. Here we are withPayPal about 3% because we’removing here in this sideways action.
Shopify also has a vaststretch that’s why in one day you’llget a 3 to 4% pullbackbecause you were already up 20% in about 14 days. So 3/4% is prettytypical and average.
This is whatyou’re watching for as you’re lookingfor when the stocks will stall out
- Where are we cominginto some past resistance levels?
- Are we coming into somewhole numbers whether it’s 60, 70, 80, 90,100, 150, 180, 200?
- How farstretched are you?
Don’t makeit too complicated than we’ll allow youto find where or when a stockwill start probably pulling back orwhere it should begin to act weak.
Youcould be an accumulator – regularly collect stocks up until when you retire, and thenyou slowly sell withtime.
As you start seeing these pullbacks, if you’re a collector ofthe square, youbuy a little more so you always havecash on reserve and you’re justconstantly accumulating.
Main concepts to look for in stocks
- Previous swing pointsokay that’s number one number
- Round numbers
- Look how fast a stock accelerates. The faster it goes up, the more likelyit’s going to come back down. Then,combine that with a decrease in volume
- Helpsconfirm the move – when you have a growing bearish volume or a reduction inbullish volume that also proves thatyou’ll probably get further lower prices.
