3 Means of Technical Analysis to Assess Price Support for Stocks and ETF’s

Tom Gentile

Posted in
Technical Analysis

By: Tom Gentile
May 31st, 2024

5 mins read

I have submitted many an article over the past month or so with reference to the markets making all-time highs. This article is going to address the concern of when the markets pull back off those highs and what one can do to anticipate a potential future price support.

The below image shows that past 100-trading days in a candle chart form and one can see the past 6-trading days has seen a pullback in the SPY off its all-time high.

Figure 1: 100-day Candle Chart SPY
Figure 1: 100-day Candle Chart SPY

There are many means of technical analysis, be it an indicator or an oscillator or even just using price action.

I am going to educate you on three means of technical analysis with the intent to help you learn to and train your eye to see where a pullback may end, finding support, where one can anticipate a bounce higher in price off that support.

The three technical means are going to be:

  1. Price – Old Resistance Becomes New Support
  2. Moving Average (Simple Moving Average line or lines can be support)
  3. Fibonacci Retracement Levels

Price Action / Patterns Based on the Security’s Chart

This aspect of technical analysis isn’t relying on any indicator or oscillator to indicate momentum in one direction r the other it is simply looking at price.

The adage you have heard me use and back it up with images is Old Resistance New Support (and its opposite Old Support New Resistance).

This is where a security breaks out above a resistance price level only to see it come back to that old price level and get tested as a new support where the price begins another move higher from.

Figure 2 below shows a price level SPY broke out from to go and make new all-time highs. It broke out above a 524-price level that was deemed a resistance from back in March.

Figure 2: SPY Break Below 524-Price Level
Figure 2: SPY Break Below 524-Price Level

If this price pattern worked out as it has a habit of doing prices would be bouncing higher from 524- rather than retreating further lower.

This is currently not acting as support so the question is now where might the security trade down to and potentially establish support?

That bring us to the technical analysis means of using Moving Averages.  I use simple moving average (SMA) for my basic technical analysis research.

Simple Moving Average (SMA)

My Best Friend and mentor, George Fontanils, God rest his soul, used SMA’s in a manner for identifying momentum of a security higher or lower called the 10-30 period SMA cross, (bullish or bearish).

This is not that system.

SMA’s can be used as support and resistance. Different stocks react a certain way at a period SMA, and it is our job as a chart technician to ascertain what that period SMA is.  We then need to recognize if the SMA is a support or a resistance.

Figure 3 below has the 30-day (day being the period duration of the SMA) on it and one can see the SPY came close to testing it as a support Friday 2024-05-31.

SPY may not get that low, but if it does and it is going to turn into support, one could expect price action to go higher from that SMA.

Figure 3: SPY with 30-Day SMA
Figure 3: SPY with 30-Day SMA

Fibonacci Retracement

Fibonacci retracement levels are what I use to ascertain where a security retraces to in a previous up or down ‘leg.’  Leg being a length of bars or candles on a chart with an established low and high price of that price run ‘leg’ higher or lower.

The retracement levels used coincide with numbers from the Fibonacci sequence. Popular retracement levels used, such as by my tools is the 38.2, and 61.8.  These are shown on the chart as a %, meaning that the security has retraced 38.2% or 61.8% of the distance of the price leg analyzed.

50% is used as well. 50 is not a number in the Fibonacci sequence, but it is such a popular retracement level in technical analysis and charting that 50% is often times used in various software’s that offer Fibonacci.

Figure 4: SPY with Fibonacci Retracement Levels
Figure 4: SPY with Fibonacci Retracement Levels

The leg being analyzed is for the SPY with a start date of April 19 to the end date showing May 31. It takes the lowest closing low to the highest closing high of that up leg and does the math.

Securities may not always test a specific Fibonacci percentage retracement level before reversing, but it always makes me appreciate it more when it does.

Figure 4 above shows SPY is closing in on the 38.2% Fib retracement level. It may not have to get there for it to reverse higher, but it is always nice to know where those levels are.

These are Key Technical Analysis Means I Use

There are a great many more technical indicators and oscillators, chart styles and price patterns that can be used in the world of technical analysis and charting.

I teach may of these in my other courses and in my live stock market session on my YouTube channel found here: https://www.youtube.com/@TomGentileTrader

I encourage all of you who want to learn more about the markets, what the markets may be doing now and down the line, and how one may utilize option strategies to profit from that assessment to subscribe to my YouTube channel to be notified when I upload my current video on all of this so you can be one of the first to know. Why you’re at it, if you have any family or friends who share an interest in the markets and the world of options trading tell them to subscribe as well!

Tom Gentile
C1P: Chief 1-Percenter

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