A Word About Overhead Resistance

With each new bull market, new leaders emerge to lead the market. These companies are often found in technology, biotech, leisure and retail. When making your final purchase decision try and focus on stocks breaking out to all time highs. Former leaders will rarely be the biggest winner in the next round of a bull market. There are a few reasons for this. One is due to the impact of overhead resistance. What happens is that people who purchased at a previous high will usually sell once the stock reaches their buy point so they can break even and move on. Purchasing a stock with overhead resistance will constantly encounter resistance points as it moves higher. Another reason, is that too many people are aware of the former leaders. Remember that the largest price moves occur in companies that Wall St. is unaware of. As Wall St. begins to notice, more institutions initiate positions in the stock, driving up the stock price and providing support at major support levels. Soon after, you’ll probably hear the stock mentioned in financial publications and CNBC, driving the price higher. Of course, as a well informed investor, you are selling the stock at this point with nice gains in your pocket. Stay ahead of the herd!

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