Saturday, August 29, 2009

A picture is worth a 1000 words - maybe more!

Future stock prices can go anywhere, up, down sideways who knows? According to technical analysis theory the past can help narrow down the possibilities, or should I say help draw some more likely possibilities.

Case in point - let's take a look at the stock chart of Realty Income 'O' which was last months trade. I'm no technical wizard but here's what the past performance tells me is more likely to happen then not. There's clearly new resistance developing at the $26.60 level and the old resistance level of $22.90 has become the new support level. The swapping of old resistance becoming new support is actually a common reoccurring pattern, which is what charting is all about.

Based on the chart here are my two observations that may occur:

  1. It will retest $26.90 resistance and if a clear break occurs (say above $27) it will move up into the $28-29 range.
  2. It will continue back to support around $23-24 after last weeks failed second attempt. It may even retest $26.60 and if it fails to break away it will then trend back down to the $23-24 support.
With the current overbought condition of both the market and Realty Income I would lean toward #2. Time will tell.

Okay so that's my 2 cents. What's yours?

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