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Tickers in this Article: CTX, AA, CBG, AHS
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 is often a strategic entry level for bulls looking to profit from a bounce.

Let's take a look at four companies that are currently trading near levels of support.

Centex Corporation (NYSE:CTX) - Looking at the chart of Centex, you'll notice that the horizontal trendline has prevented the bears from pushing the stock lower in the past. The narrow trading range that has recently dominated the price action will be used by traders to confirm the strength of the nearby support; some traders may even watch for a bounce higher. It is important to note that the series of lower highs (shown by the blue lines) suggests that the bears are in control, so those who are anticipating a short-term bounce may want to consider placing a stop-loss order below the nearby trendline to protect themselves from further downward pressure.


CB Richard Ellis Group Inc. (NYSE:CBG) is another company that is currently trading near an established level of support. As you can see from the chart below, the ascending trendline has prevented the price from moving lower in the past and many traders are curious to see if this will be the case again. You'll also notice that the confined trading range has created an ascending channel. The presence of this pattern suggests that any bounce off the support is likely to run out of steam as it approaches the upper trendline. Bullish traders may watch for the stock to rise toward the upper trendline and protect their positions by placing a stop-loss below the recent swing low of $20.96. On the other hand, the bears will wait for a move below the support (20.96) to trigger another wave of selling pressure.

Alcoa Inc (NYSE:AA) - In technical analysis, one of the most interesting phenomena regarding support and resistance occurs when the price of the underlying asset is finally able to break out and go beyond an identified level of support or resistance. When this happens, it is not uncommon to see a previous level of resistance change its role and become a new area of short-term support. In the case of Alcoa, notice how the $39.50 resistance level has prevented a move higher in the past (shown by the black arrows). The role of this resistance changed to one of support once the price was able to break above $39.50 in early May. The recent bounce off the horizontal trendline will be used by traders to confirm the strength of the nearby support and could trigger a move higher.

AMN Healthcare Services Inc. (NYSE:AHS) - Looking at the daily chart of AMN Healthcare Services, you'll notice that the $16.50 level has been very influential in the past. In late 2007, it acted as a strong level of support and then changed to resistance when the price broke down in 2008. As you can see from the chart below, the bulls were able to regain control by sending the price above the resistance in May. Traders will now use the recent bounce off $16.50 as a sign that the support level is still significant. Bullish traders are likely to set their stop-loss orders below the nearby support because the recent strength suggests that the bulls are in control of the short-term direction.

For educational articles on support and resistance see:
Support & Resistance Basics
Support And Resistance Reversals

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