Re: Selling Pressure ... Where to anticipate it.
I have been asked via PM to explain what to look for on a chart to determine where selling pressure might show up. I thought I would post the explanation here for others to see, in case others wondered the same thing.
Here is the question:
>>> I'm looking for that "tells me" where selling pressure comes into a stock. I remember that you mentioned that CMF show accumulation of a stock...but what is it on a chart that shows selling pressure? <<<
Selling pressure comes from what is known as overhead supply. Overhead supply is any share owner who bought the stock "above" the current price. Anyone holding the stock, who bought at higher prices, is holding a losing position.
If there are a considerable number of losing positions, those losing positions are feeling the pain of holding that position, and are waiting for price to come up to their entry point so they can sell and get out even.
In order to determine overhead supply, I always look to the weekly charts. When looking at the weekly chart, you want to search for areas of congestion, where price sold sideways for a period of time before dropping.
I was asked about IMA.
In looking at the weekly chart of IMA, starting in October of 2006 thru May of 2007, the price traded in a range between 37.50 and 45.00. That represents 8 months of buyers who are still underwater on their position, if still in. They would have seen their positions go all the way up to 65.00 and drop all the way down to 26.00. That's a lot of pain.
In April of 2008 and again in May of 2008, price traded up to the bottom of that previous trading range and price pulled back. That's overhead supply coming to market. That is confirmation that a lot of those 2006 and 2007 share owners are relieved to be getting out even after blowing it by not taking profits on the run up, prior to the steep decline.
Once IMA works through that overhead supply, another batch of overhead supply awaits in the 45.00 to 53.00 price range from June 2007 to September 2007. That particular range should be easier to work through because there aren't as many share owners in that price range still feeling the pain as the number of share owners in the example above.
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