For Chief Income Strategist Marc Lichtenfeld, this week’s episode of his popular YouTube series State of the Market is personal…
You see, Marc started his career on a Wall Street trading desk.
There, he learned both to assess a company’s fundamentals and to look at its stock chart to know where its share price was headed next.
Now he’s ready to share that secret with you…
This week’s State of the Market explains the two most important factors to understand when it comes to reading stock charts: support and resistance.
All stocks waver up and down in share price. When they repeatedly bounce upward off one value or one point on a trend line where buyers rush in, they are said to have support.
Here’s one example from Marc’s video…
Buyers’ eagerness to leap in at this lower share price reveals their confidence in the stock’s long-term prospects.
In that case, a stock dipping down to support levels represents a buying opportunity.
Then you have resistance. Resistance occurs when a stock’s share price repeatedly bounces downward off one value or point on a trend line.
Here’s what that looked like for Morgan Stanley (NYSE: MS) this year…
This represents times in which sellers rush to offload shares, indicating bearishness in the market.
So as Marc explains in this week’s video, changes in support or resistance can indicate changes in shareholder psychology.
If a stock dips below its support value or trend line, it shows that investors are wary and the stock is likely to fall further.
Here’s an example from Marc’s latest episode…
If a stock leaps above its resistance value or trend line, it has what is known as a “breakout.”
This can indicate that the stock is ready for a new run higher.
Investor psychology can change for a variety of reasons.
For long-term investors who track fundamentals, changes may be noteworthy because they represent a shift in earnings or another kind of catalyst.
But for short-term traders who base their strategy on stock charts, “Why?” is less important than “What next?”
For example, a support trend line that moves upward can indicate that a stock is heading to new highs.
Meanwhile, a resistance trend line that trails lower can be a bad omen.
Of course, no technique can perfectly predict what a stock will do next. A stock that breaks its resistance level can drop, and vice versa.
But in this week’s edition of State of the Market, Marc reveals how you can use stock charts to identify these trends – and increase your profits and lower your risk in the process.