Not only do the moving averages provide areas of support and resistance to a stock’s price moves, but previous price levels do so also. When a stock is moving up, frequently support is provided at a price level that was previously resistance, and vice versa. Let’s take a look at some charts to illustrate this:
The following chart of Eastman Chemical shows the stock hitting a high of 41 in November 2011. It then broke out to new highs in January 2012. The stock had a correction in June 2012 that brought it down to 41. This was no accident. Stocks frequently come back to a previous resistance price levels, and bounce off of them.
Chart courtesy of StockCharts.com
(Click to enlarge)
This chart of Bank of America shows a previous area that was support for the stock’s price now acts as resistance to it moving higher.
Chart courtesy of StockCharts.com
(Click to enlarge)
The following chart of the Dow Transports Index shows how prices were contained in a channel of both support and resistance points for some months before breaking out to the upside.
Chart courtesy of StockCharts.com
(Click to enlarge)
