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Session 2 -- Support and
Resistance
There
is a saying I like, "The teacher will appear when the student is ready. Are
you ready?"
The
first thing you will need to do is start to look for patterns in the stocks you
choose to play. Each stock has a unique personality and style all it own. The
reason for this is people are people and well there is one person who controls
each stock traded on the NYSE (specialists) and a few large players who control
the NASDAQ (market makers). These people buy the stocks in large quantities and
then piece mill them out to you and me. They are investors like us but only with
substantially larger money pots to dip into.
Each
day when the MM starts up his computers he sees a list of sell orders and buy
orders. He takes a look at the stocks closing price and decides where he will
open it. Thus the explanation for the Gaps up or down. Once the initial opening
has begun the trading public kicks in and drives a stock up and down throughout
the day. Now here is the interesting part about this manipulation I was talking
about. It happens at the end of the day. If you take a look at the charts below
you will see what I mean.
In
the first chart we will take a look at an old favorite of mine, Yahoo! Inc.
(YHOO). Notice how it stops at certain points along the way? You have to always
be in a detective mode to see things. First question would be why did it stop
there?
Now
take a look at the second chart below.
I
have drawn a trend line at the point it stopped at. If you follow the line, you
will notice Yahoo has support from a few days back but is this enough to make a
buying or selling decision? I think not. Lets dig a little deeper shall we?
It
appears to have stopped for no reason right? Well here is where TC 2000 really
makes the difference from those freebie charts. I will un-adjust the split back
in Feb ‘99 and lets see what we see.
The
support line I drew is actually resistance back in Dec of 1998. Yahoo gaped open
over that resistance then it became support while it made a new high. Notice how
quickly it fell below it and then became resistance again by the time it split?
A picture is worth thousands of dollars!!
Now
we will go forward to see where it is going to end up? Any guesses?
After
making another attempt for the high, Yahoo failed and fell below support. The
line is currently becoming resistance again and we have a split coming next
week. Did you notice where it stopped falling?
Right
where it stopped last time. Are you getting the picture here? Is this stuff
amazing or what? Now I will finish drawing the lines at key stopping points and
we can predict where this stock will climb or fall to in the future. In my
experience I have found this to be accurate better than 70% of the time. Even if
it spikes up or down from a key support or resistance it returns to it shortly.
Notice the top of the next chart and the bottom.
See
where it broke out to a new all time high of $500 but then quickly fell back to
old resistance at $450? Now look at the diagonal line, this is where Yahoo is
likely to fall after it clears the support from the last dip and notice that the
diagonal line intersects the fall before the last split run. Of course it’s
not a guarantee but you can sure plan on it being close. Therefore you need to
place your orders to buy and or sell accordingly. NEVER try to pick the top or
the bottom, just shoot for the fat middle. Also one last note, make sure you buy
enough time to ride the dips especially on these Internet stocks.
RETURN
TO CHARTING SECTION
Profits Up!
The donFranko
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