Riding The Metro
People from time to time ask, what is the use of identifying support and
resistance levels? If you’re trading on the basis of current price action and
momentum, why does it matter if you think a stock’s price is going to pause
or stall at a certain price level in the future. You’re not trading based on
anticipation, you’re trading on the basis of what you see happening right now.
Let me state emphatically that it is extremely important to focus your
attention on price and volume action as it happens. But there is also no doubt
in my mind that it is extremely useful to know where the future support and
resistance lies. This is no less practical than identifying a stock that is in
strong trend. After all, in such a case, you are making the assumption that a
stock with a strong trend will tend to continue moving in the direction of
that trend. Knowing the trend allows you to trade with improved odds by only
betting in the direction of the trend.
Conversely, knowing where potential support and resistance lies allows you
to get more optimal entries and tighten stops at appropriate levels.
I liken support and resistance to being sort of like bumps of varying
heights on the road. A small bump will slow you down. A big bump will be an
obstacle that halts your progress and pushes you in the opposite direction.
 Bigger bumps occur when the asphalt piles up.
In the the market, I see pile-ups when multiple patterns coincide. In Metro
One
(
MTON |
Quote |
Chart |
News |
PowerRating) we have such a setup. MTON bounced on Tuesday off its 61.8%
retracement and the lows of its range to a level just above its 20-day moving
average. In the past month, MTON has seen huge spurts in volume on price
surges, giving us volume that is strongly tilted to the buy side–normally seen
as a bullish sign.
With the indices broadly lower and MTON closing 1 1/8 higher in defiance,
MTON seems to one to watch, particularly if the market stages a surprise
advance.
Eddie