Quick Take: Mind Tricks and Stock Market Resistance Levels

stock market, stock chart, technical analysis, investingBy Andrew Nyquist
If I’ve learned anything during my time investing, it’s that highly visible support and resistance levels work.  But the trick to taking advantage of them is having enough discipline and patience to weather the mind tricks.  The market tape almost always gets silly as we near important levels and investors must watch out for the psychological worm that makes us second guess ourselves.
Case in point, the short term daily up trend and its two important levels of “visible” resistance on the S&P 500 (daily non-futures cash version referred to as SPX).  Initial level: SPX 1225 (April/Nov ’10 highs)  Next visible level: SPX 1255-1260 (early August breakdown).  The following is a play by play of what the SPX did after clearing 1200 to the upside:  Went to 1221, pulled back to 1190, to 1225, back to 1192, before finally breaking out/faking out to the upside and reversing at 1233 and back down to 1197.  Lots of noise, but a heck of fight put up at 1225, eh?
So what about the 1255-1260 level?  Well that could be coming, in this leg or the next one. Yesterday’s sub 1200 low brought out the bearish party hats.  Problem is, no one showed up to wear them.  Yesterday’s upside reversal spoiled the party and hints at another run at upside resistance.  But wait for a break of 1225.  Canceling out the noise can be extremely difficult, but as Minyanville founder Todd Harrison says, you can learn a lot from watching.
stock market chart, technical analysis


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No positions in any of the securities mentioned at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.

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