It is time to sit up straight and take notice of this situation on the JSE Overall Index. The index is right at the level where we saw the reversal during 2008 and the market is currently overbought on the monthly, weekly and daily timeframes so we could be in for a major correction here. We will have to see what the coming week holds in store. It could be that we get some follow through after the strong action of last week and then, later in the week, get the reversal to confirm resistance.
Explanation:
Support: When buyers are willing to pay a certain price, and the sellers are not willing to sell below that price, we call it a support level; ie. buyers supporting the market. When we see rising support levels it indicates a bull market.
Resistance: In this case it has nothing to do with the French fighters during the 2nd World War. The price level at which sellers are in control of the market and the level at which the buyers are not willing to pay more, is known as resistance. When we see consecutive lower resistance levels it indicates a bear market.
By studying support and resistance the analyst can determine the current trend in a certain timeframe. The aim is to own shares in a bull market and to be in cash or protect capital during a bear market. By doing so the investor can add value to his overall, long-term returns, while being able to sleep at night.
