Posted in
Technical Analysis
By: Tom Gentile
on May 20th, 2022
When the markets are sliding like they are year-to-date one should work with their financial professional / broker on whether you go more to cash, re allocate your money to a different asset class or consider cost averaging stocks you own.
It’s this last idea that I want to offer some insight to.
Recognize I can’t tell you or recommend to you what to do with your holdings.
I can educate you on some ideas from a technical analysis view that may help you and your financial team with your analyses,
Have an Idea Where Price Support May Be
The markets are tumbling and that, some would say, is an understatement.
When things are breaking down one should look for how much further down it could drop, It’s at that point in time one can ask themselves if they are willing to hold that security even if that happens.
A lot of people say ‘I am in it for the long-term’ then proceed to watch it drop further and or to that price point and still feel anxiety or pain.
If on doesn’t have an idea of a pending or future support price, even with the mindset of being in it for the long-term, they risk the pain becoming so unbearable’ they eventually cut their losses.
Which may have been the best thing to do in hindsight.
Sometimes they sell when that security is (unbeknownst to them) at or testing a price support level,
Of course, they then start kicking themselves for getting spooked out of their position and wish they were still in it.
Again, this is where having an idea where price support is should help avoid that.
Technical Analysis Price Pattern: Old Resistance / New Support
A price pattern that happens and is one I like quite a bit is when a security breaks through a price resistance are and runs higher only to see price retrace to the price resistance area it broke out from.
When that happens there is a chance the stock reacts to that price are as a support level where investors who maybe did not buy the security at that price the last time it was breaking out there feel they have a second chance to now get into that security.
There is also a likelihood that folks that bought in on the breakout last time see an opportunity to add a little more to their position. Another thing is those that bought the security a little later than at the breakout price see an opportunity to cost average in at the breakout price still believing the security is worth holding for the long-term.
All this brings the prospect of the security trading higher in price again.
The below chart is that situation for Kellogg (NYSE: K)
Understand this is for educational and illustrative purposes only and is NOT a recommendation to accumulate or sell the security).
Not only is this NOT a recommendation it may not bounce from its current stock price.
If it does trade higher from here it would be a successful example of showing how this pattern works out and the more one experiences seeing this pattern work, they are likely to gain a strong conviction for it and the next time they see it happen they may be able to act on it versus let it pass them by.
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