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Stocks Resistance Line

The bearish resistance line is one of the two main trendlines used in the point and figure methodology. This trendline is also called the �downtrend line.� Typically, it is best to stay away from stocks trading below their bearish resistance line.

The bearish resistance line is drawn when the stock has formed an apparent top. It should be started in the box directly above the highest X in the highest column on the trend chart, and then should move downward to the right at a 45-degree angle. If the stock is trading below this bearish resistance line, it is considered to be in an overall downtrend. A stock will often rally right back up to the bearish resistance line and will be repelled, only to resume its downward bias. Again, the trendline acts as a brick wall. Trendlines can be very helpful when making buy and sell decisions. Ideally, investors want to avoid stocks trading below their bearish resistance line, since they are considered in an overall downtrend.

When the bearish resistance line is broken or penetrated, though, it signals a change in the trend of the stock to positive, and suggests it is time to evaluate whether that stock should be bought. In such a case, it is often a sign that the stock has made a bottom and is a good turnaround candidate. Watch for stocks to change trend in this fashion, especially if the stock has been trading below its bearish resistance line for a long time, as these are candidates for purchase.

Think of a stock�s relative strength as having a motor in your boat. It is much easier to move through choppy waters or go upstream when you have a motorboat versus a rowboat. A stock that exhibits positive relative strength has a �motor� in it; stick with stocks that have positive RS, as they will have an easier time navigating the uncertain waters of the stock market.

Find a methodology that you believe in, one that meets your risk characteristics and financial goals. Practice it well and then stick with it. We suggest that you, adhere to rules or a game plan when investing. There is a time to buy and a time to sell, and you must know when that time is.

By: Anthony Green

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