The S&P 500 ETF (NYSE:SPY) finally made it up to the $143 area, which I’ve been targeting as resistance for several weeks. It closed right underneath the back test of the broken rising wedge on its chart. A new bearish trend reversal actually happened intraday Tuesday.
With the Russell 2000 ETF (NYSE:IWM), it’s the same type of scenario. It went bearish a couple of weeks prior, so that’s already a little bit more developed. There’s nothing new with the IWM chart, so around the $83-$84 area remains resistance in IWM, like the $143-$144 resistance area in the SPY. For these resistance areas remember it’s not usually an exact number; in the case of SPY and IWM resistance is in the back test area. The IWM is constantly rising, so where prices meet is resistance.
Why is knowing resistance so important?
Support and resistance levels are price levels where there tends to be an exhaustive level of supply/demand preventing the price from moving further up/down. Knowing the support and resistance levels can help an investor determine a suitable entry price, price target for profit-taking and stop-loss level.
A support level is a price level at which there has been exhaustive demand as investors see good value for the stock at that price, and this demand tends to drive the price higher again. That would make trading long near the support level a possible good entry time. However investors must take caution because it is possible that investors no longer see value at this level and do not enter the stock, which effectively wipes out support and leaves the stock to continue dropping. For this reason, some people place protective stops just below a support level.
Conversely, a resistance level is a price level at which there tends to be exhaustive supply as people see it as a good price to take profits. An investor may consider taking profits as the stock approaches a resistance level because it may drop off or at least have trouble moving higher. It may also be a good time to take a short position near a resistance level considering there may be downward pressure on the stock at this level.
My Pivot Calculator at Trending123 identify levels that technical traders can use to determine directional movements, as well as support and resistance levels. There are several kinds of pivot points, including floor trader pivots, Camarilla pivots, DeMark pivots and Woodie’s pivots and each can be helpful in various scenarios.
Floor trader pivots come from the pit traders. A lot of people use them so they are almost self fulfilling. The main pivot point is usually used as the primary trend indicator. If price is above the primary go long and if below go short. The others act as normal support and resistance levels. Generally price will not penetrate S/R 3 if it does it will probably be a big move. You can use these for daily, weekly and monthly charts.
Camarilla pivots show probable levels of support and resistance in a current trend. It’s kind of hard to find information on these and I don’t use them much. R3/S3 are the major levels where you can expect a reversal. R4/S4 are the breakout levels. If price trades above those levels it’s a good bet price is going to continue in that direction. They seem to work pretty well though on the daily charts.
DeMark pivots aren’t really pivots. They were invented by a guy named Tom DeMark and attempt to identify the high and low points for the period. They need the current open price to determine which formula to use in the calculation. Mostly good for Daily.
Woodie’s pivots are pretty much like the floor trader pivots but the formula gives more weight to the closing of the previous day. These are good to use on days where there is a large gap up or down. When I use them I tend to use both woodie and the floor trader pivots until I can determine which ones are going to give me the better signals.
Let’s look at an example of my Pivot Calculator using Apple’s (NASDAQ:AAPL) prices from the Wednesday, Dec. 11, trading session. R1 simply means the first level of resistance, while S1 means the first level of support and so on.
Knowing the support and resistance levels can help a trader decide when to enter or exit any trade, and it’s something my Trending123 members enjoy with their membership. Join us today and gain access to support and resistance levels to any stock in your portfolio.