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To: Jim Kay who wrote (311)	4/10/1998 3:11:00 PM
From: Casey	Read Replies (1) \| Respond to of 671

Support and resistance 101 <g>. This may explain some of what is happening: Price charts for stocks are built from three variables, daily/weekly price ranges, trading volume and time. Looking at the historical price movements on a price chart, one can identify periods where the stock price 'consolidated' i.e. the price moved within a narrow trading band over a period of several days, weeks or months. These periods of price consolidation interrupt periods of more radical price change, either up or down. These periods of price consolidation become either a support, if the current price movement is moving down towards this previous consolidation level, or a resistance, in the case where the price movement is moving back up toward a previous consolidation level. The strength of the support or resistance is more accurately measured by the volume of stock traded during the consolidation period, than by the duration of that period. (TA in general, and these concepts in particular, do not apply very well to an illiquid stock). However, the further back in time the support or resistance level is, the weaker it is considered to be. Why? The reasoning is as follows: If the price is dropping from a recent level, traders will look back in time at the price chart to find the most recent periods of consolidation, and will label these as a support levels. The expectation is that demand will still exist at that/these price level(s) - once the stock price hits that level, it is expected to bounce off it, as new buying will come in. The most simplistic reasoning is that a large amount of stock was being accumulated during that previous consolidation, and there will still exist some buy orders at that price level - from those that are still sorry the stock 'got away from them'. Newsletter writers or analysts who were pushing the stock at these previous levels will be communicating to their subscribers that another buying opportunity is at hand. Speculators (day traders, SOES bandits, etc.) will therefore act on this - expecting a bounce, and short sellers will exacerbate it by tending to cover their positions at the support point. Therefore, demand halts the fall or even reverses it. Support. If the price of a stock is moving back up after a period of retracement, traders will again look back in time at the price chart to find the most recent periods of consolidation, and will label this as a resistance level. The expectation is that the price advance will stall or even reverse at this level. They anticipate a supply of stock at this level which will halt the advance. The simple reasoning is that there now exists a lot of investors who accumulated the stock in the past with the expectation of a price rise, and these investors now feel that they are left holding the bag. They will be happy just to get out of the position without a loss - it's a psychological thing. So they are waiting there with their sell orders ready the minute the stock approaches their initial entry point. This stock in the hands of these types of investors is referred to as supply or overhang. Once again, speculators anticipate this and participate, thereby further amplifying the result: the professional shorters may pick this as an entry level if they feel this will be a deadcat bounce; day traders will sell out their long positions and may take the short side of the trade; Nervous longs may short the box, etc. Resistance. A breakout is when the stock price moves through resistance to a record high. There is no further supply/overhang and the sky's the limit. Short squeezes often amplify these breakouts. It most certainly is more complex than this, but the foregoing certainly accounts for a large part of the phenomena.