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[Watch Now]: Quantifying Overhead Resistance

4 Key Methods

Being able to recognize where overhead resistance lies is absolutely critical in your trading. This area signifies a decision point, where you must make investing and trading decisions.

It goes something like this.

“If the indexes trade higher, and overhead resistance breaks, with price closing and continuing above the resistance area, I want to start looking for relative strength buys in the market.”

Or, conversely:

“If the indexes continue to run into this wall of resistance, fail, and trigger to the downside, I’m going to focus on indexes and tickers with relative weakness, as they will fall first.”

As such, knowing how to identify the level, and recognizing price action at that area, is key.

MarketWatchers LIVE

Yesterday, I stopped by Market Watchers LIVE on StockCharts TV, with Tom Bowley and Erin Swinlin, to discuss quantifying overhead resistance in the market. You can check out the video below:

Why is this critical right now?

The technical condition and the macro condition are telling two different stories, but, traders must remember – it’s always price before news. 

What does this mean?

Macro conditions may cause investor sentiment to deteriorate sometimes (and sometimes the market doesn’t care!).

Technical breaks definitely cause investor sentiment to deteriorate.

Often times, the news blames a technical break on a macro condition, or vice versa, but if the technicals cannot be repaired, the macro doesn’t matter as much.

The Technical Break 

After the technical break the market experienced in early August with the escalation of the trade war, it’s been difficult for price to recover, despite increasingly positive news. That’s because investors aren’t buying! And, when they are, they are buying in select areas, like COST, WMT and TGT (which had positive news).

Yes, the macro condition has improved. President Trump walked back his threats of placing a 10% tariff on retail goods from China. However, China had already retaliated, refusing to buy agricultural products from US farmers – a key area of contention in the trade war.

Yes, the Federal Reserve may cut rates again in September, which, would be bullish for the stock market, but may not necessary undo the damage the trade war and stock market volatility is doing to investor confidence.

But, at the end of the day, what matters is price. It’s ALWAYS price before news. And, price is still stuck under resistance.

What does that mean? It’s like buyers saying, “Nice try, but not good enough.”

President Trump can send out all the positive tweets he wants, and while that functions much of the time, if the positive news isn’t enough to push investors to buy, and break the overhead resistance caused by the August pullback, the path of least resistance, for price, is down.

And, guess what. Then the news will talk about how it’s down. And, investor confidence will be even more damaged. Which leads to – you guessed it – lower stock prices.

The Why

So, as you can see, a break of overhead technical resistance is critical for any type of market rally. A break of overhead resistance would give investors confidence to start buying again, which in turn, would push stock prices here. As of right now, we are still stuck under resistance! Now you know where the line in the sand is…and you know, I’ll adjust my decisions depending on how price acts at this level.

 

 

 

 

4 thoughts on “[Watch Now]: Quantifying Overhead Resistance”

  1. If you want a superior visual trend indicator, try MVTI in the shared ToS library. It resolves trend to 5 levels: strong down, down, neutral, up, and strong up. It uses DMI and CCI in combination in a unique manner to assess trend. It is much more accurate than the simple EMA based “graB” bars algorithm. In my opinion. It is fully written up in the May 2019 edition of Technical Analysis of Stocks and Commodities magazine.

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