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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: HeyRainier who wrote (1346)	8/24/1998 9:16:00 PM
From: ftth	Read Replies (1) \| Respond to of 1720

[Resistance versus time:] When we speak about resistance/support, we generally mean a price-based horizontal area where price progress pauses. But other chart-based parameters can show the same stabilizing effects. Price gaps, widely-followed moving averages, percent retracement levels, and trendlines can all possess strong support/resistance characteristics. Even after a support or resistance level is penetrated, these levels can again become important impediments to the continuation of a new move at some time in the future. I've observed that the resistive power of a POTENTIAL resistance point (or range) depends on time (or age), volume, and volatility. As a generalization, the older the trading volume at a particular point, the less significant it is simply because the odds increase with the passage of time that the trades which happened at the old resistance point were closed out at a different point. But, if we look a little deeper, an old resistance point with more trading volume and longer duration can swamp out the effects of a more recent resistance with lower volume and duration. Also, tighter trading spreads (especially during the last several days of the support/resistance region) tend to produce stronger and clearer support/resistance levels. None of these observations are ALWAYS true. An accumulation/distribution measure can be used to approximate how many shares are held at a loss relative to the potential support or resistance point (and relative to the float), and therefore estimate how much potential selling pressure there might be (as well as how strong it might be using the percent of the float) as we approach or subsequently break through a support/resistance zone. This uses the idea that the most important price is the price you paid for the stock. That's the price a person is most sensitive to. A clump of accumulation at one level has much more potential for a large downward move as price drops below that point than just a single average volume day going below that point. The potential supply is larger once these become losses, and they hit with larger force. Breaking into new high ground AND sustaining a move after that break is the hardest to call because hardly anyone is holding at a loss, and those that are have only a minimal loss (unless the consolidation region was very wide). Therefore, selling pressure is hard to estimate once we're in new high ground. In general, the broader market is a good barometer for the chances of a sustained breakout (if the broader market is consolidating, the breakout is more likely to be turned back than if the broad market is strongly bullish) It seems to work best if we start our A/D measurement from the last point of clear price equilibrium (i.e. a solid base of at least 6-8 week duration where the volume dried up-indicating the last interested seller had sold) just prior to the oldest resistance we feel has significance. We need a cumulative A/D number since that equilibrium point, as well as an A/D figure that just represents trading activity at prices higher than the resistance point. I didn't really refine this, but roughly, if more than 60% of the net A/D is at higher prices, the support was more likely to be penetrated, and if it's less than about 30%, it was more likely to hold. Unfortunately that gives a fairly wide range where it's not clear whether it will hold or fail, so not too useful in that form. My next experiment (which I never got around to) was to see if the accuracy would increase if the A/D at higher prices was both greater than some percent of the A/D for the total move, as well as greater that some percent of the float. Trading volume relative to the float is a good proxy for the potential force behind a move in either direction. dh