Three Stocks Set To Profit From A Bounce
The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis. In active trading, it is not uncommon to see a certain price level prevent traders from pushing the price of a stock downward. These levels are known as support, and they tend to act as a floor that prevents the bears from taking control of a stock's direction.
In general, a stock trading near an established support level is regarded as a good buying opportunity because it usually coincides with the area where participants see good value and are willing to push the price higher again. The most common method for identifying levels of support comes from drawing a trendline that connects a series of lows. As you can see from the chart below, the trendline often prevents the price from moving lower and acts as a strategic entry level for bulls looking to profit from a bounce.
Let's take a look at three companies that are currently trading near levels of support.
Colgate-Palmolive Co. (NYSE:CL) - Taking a look at the daily chart of CL, you'll notice that the price is nearing the support of an ascending trendline. As you can see, the bears have been in control of the recent direction, but today's bounce off the support level suggests that the bulls are getting ready to step back in. Bullish traders will likely watch for the price to rebound toward the nearby swing high of $75.16 and will look to protect their position by placing a stop-loss order below the trendline because it offers an interesting risk/reward ratio. It is important to note that a close below the trendline would jeopardize the conviction of the longer-term uptrend. If the bears are able to send the price below the trendline, then it is important for bullish traders to realize that this is a technical sell signal and that it could lead to a much more dramatic pullback.
Fiserv Inc. (Nasdaq:FISV) - FISV is another company that is in the process of testing a long-term level of support. As you can see from the chart below, the $47 level has propped up the price in the past, and many traders will be watching closely to see if this will be the case again. Notice how this trendline acted as a level of resistance in 2002 and 2005, but has since reversed its role as the price was able to move above this level in 2006. This chart is an excellent example of how a previous level of resistance can turn into a level of support once the price is able to trade above it. (For more, see Support and Resistance Reversals.)
Northern Trust Corporation. (Nasdaq:NTRS) - Taking a look at the chart of NTRS, you'll notice that it is similar to that of CL. This company is in the process of testing the support of an ascending trendline, and the chart is a good example of how a pullback toward an ascending trendline can make for a strategic entry level. In most cases, traders will protect their long positions by placing stop-loss orders below the trendline. A break below the support level is a technical sell signal and it means that the bears are taking control of the momentum. In this case, the bulls don't need to worry yet because the price is still above the trendline. Most traders expect the bulls to remain in control and if things continue like they have in the past, they should be able to send the price higher.
For more see:
Track Stock Prices With Trendlines
Support & Resistance Basics
In general, a stock trading near an established support level is regarded as a good buying opportunity because it usually coincides with the area where participants see good value and are willing to push the price higher again. The most common method for identifying levels of support comes from drawing a trendline that connects a series of lows. As you can see from the chart below, the trendline often prevents the price from moving lower and acts as a strategic entry level for bulls looking to profit from a bounce.
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Let's take a look at three companies that are currently trading near levels of support.
Colgate-Palmolive Co. (NYSE:CL) - Taking a look at the daily chart of CL, you'll notice that the price is nearing the support of an ascending trendline. As you can see, the bears have been in control of the recent direction, but today's bounce off the support level suggests that the bulls are getting ready to step back in. Bullish traders will likely watch for the price to rebound toward the nearby swing high of $75.16 and will look to protect their position by placing a stop-loss order below the trendline because it offers an interesting risk/reward ratio. It is important to note that a close below the trendline would jeopardize the conviction of the longer-term uptrend. If the bears are able to send the price below the trendline, then it is important for bullish traders to realize that this is a technical sell signal and that it could lead to a much more dramatic pullback.
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Fiserv Inc. (Nasdaq:FISV) - FISV is another company that is in the process of testing a long-term level of support. As you can see from the chart below, the $47 level has propped up the price in the past, and many traders will be watching closely to see if this will be the case again. Notice how this trendline acted as a level of resistance in 2002 and 2005, but has since reversed its role as the price was able to move above this level in 2006. This chart is an excellent example of how a previous level of resistance can turn into a level of support once the price is able to trade above it. (For more, see Support and Resistance Reversals.)
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Northern Trust Corporation. (Nasdaq:NTRS) - Taking a look at the chart of NTRS, you'll notice that it is similar to that of CL. This company is in the process of testing the support of an ascending trendline, and the chart is a good example of how a pullback toward an ascending trendline can make for a strategic entry level. In most cases, traders will protect their long positions by placing stop-loss orders below the trendline. A break below the support level is a technical sell signal and it means that the bears are taking control of the momentum. In this case, the bulls don't need to worry yet because the price is still above the trendline. Most traders expect the bulls to remain in control and if things continue like they have in the past, they should be able to send the price higher.
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For more see:
Track Stock Prices With Trendlines
Support & Resistance Basics
Free Annual Reports
