Testing Support Levels

08/22/2008 12:00 am EST

Focus: STRATEGIES

Bo Yoder

Publisher and Writer, 5MinuteInvestor.com

When the market tests support, traders expect to see prices rise and move back into a more bullish posture. They begin to build into their long positions, and then sit back to watch their profits accumulate. When the stock fails to react, however, as we see in the chart above, traders quickly grow bored. The longer they are forced to wait, the higher the odds are for a collapse. The daily chart of Weatherford (NYS:WFT) acts as a great example of this price behavior.

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