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Learn to Profit By Buying Stocks at Support |
By David Grandey
All About Trends
October 28, 2009
The stock market is sitting at a critical level right now — and it’s
one that could make you a serious amount of money. For the fourth
straight trading day, stocks are down across the board. Investors are
wary of the market. But tomorrow morning there’s one critical catalyst
that could turn your fortunes — if you know how to buy stocks at
support…
If
Friday’s action is any indication of what next week’s early action is
all about then its “Pullback Off Highs” time in the indexes. Last week
we saw some big kingpin names report their earnings results (AAPL,
GOOG, MSFT) and they couldn’t even bust through the last 3-4 days’
high. Why? It’s trend channel resistance.
Resistance, the level that a stock or index’s price has trouble
breaking through, is one of the strongest technical indicators out
there. Stocks’ difficulty breaking through their resistance levels
tell you just how strong trend channel resistance is currently. No
matter, we don’t buy resistance anyway. Instead, we sell at it.
As you can
see trend channel resistance and support are clearly defined by the
green lines in this six-month chart. As I’ve been saying the last few
weeks, it’s all about buying stocks at trend channel support and
selling them trend channel resistance.
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You can
also see that the S&P 500 has tried for four days in a row to bust
through to higher highs but as of yet hasn’t been able to do so. A
pullback to trend channel support may be just what’s needed to get a
running start. Should that occur then we want to be buyers of stocks
that fit a similar pattern that trade in tandem with the market.
Should
trend channel support fail, below is another chart that shows an even
larger trend channel support level.
So what
could cause a running start? For starters, I’m looking for that
pullback to trend channel support. That’s essential. Coupled with a
news driven event tomorrow in the form of third-quarter GDP numbers, a
catalyst is there to make stocks bounce back up.
Those GDP
numbers are slated for Thursday before the market opens, and the
estimates out there are for 2.2% to 3% growth. Remember it’s headline
news that’s paid attention to, not the internals of the results that
only economists will focus on. Either way this is a market moving news
event.
When the
market bounces tomorrow, we want to focus on buying only stocks that
are sitting right at support.
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How to Buy Stocks at Support
Be on the
lookout for stocks that have pulled back from their recent highs to
their support levels at either a trendline or 50-day moving average.
The chart of Goldman Sachs (NYSE: GS) is a good
example of what we are looking for:
As you can
see, GS is pulling back to support at its trendline channel and close
to support of the 50-day moving average. And if the market gets closer
to support at the bottom of its trendline channel, then you have all
the right conditions for a good long side trade.
And
Goldman’s not unique. There are tons of similar plays out there right
now — it’s just a matter of opening your favorite charting program and
mapping out trendlines.
Sincerely,
David Grandey
AllAboutTrends.net
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