The stock market is sitting at a critical level right now – and it’s one that could make you a serious amount of money. For the fourth straight trading day, stocks are down across the board. Investors are wary of the market. But tomorrow morning there’s one critical catalyst that could turn your fortunes – if you know how to buy stocks at support…

If Friday’s action is any indication of what next week’s early action is all about then it’s “Pullback Off Highs” time in the indexes. Last week we saw some big kingpin names report their earnings results (AAPL, GOOG, MSFT) and they couldn’t even bust through the last 3-4 days’ high. Why? It’s trend channel resistance.

Resistance, the level that a stock or index’s price has trouble breaking through, is one of the strongest technical indicators out there. Stocks’ difficulty breaking through their resistance levels tell you just how strong trend channel resistance is currently. No matter, we don’t buy resistance anyway. Instead, we sell at it.

As you can see trend channel resistance and support are clearly defined by the green lines in this 6-month chart. As I’ve been saying the last few weeks, it’s all about buying stocks at trend channel support and selling them trend channel resistance.

You can also see that the S&P 500 has tried for 4 days in a row to bust through to higher highs but as of yet hasn’t been able to do so. A pullback to trend channel support may be just what’s needed to get a running start. Should that occur then we want to be buyers of stocks that fit a similar pattern that trade in tandem with the market.

Should trend channel support fail, below is another chart that shows an even larger trend channel support level.

So what could cause a running start? For starters, I’m looking for that pullback to trend channel support. That’s essential. Coupled with a news driven event tomorrow in the form of 3rd quarter GDP numbers, a catalyst is there to make stocks bounce back up.

Those GDP numbers are slated for Thursday before the market opens, and the estimates out there are for 2.2% to 3% growth. Remember it’s headline news that’s paid attention to, not the internals of the results that only economists will focus on. Either way this is a market moving news event.

When the market bounces tomorrow, we want to focus on buying only stocks that are sitting right at support.

How to Buy Stocks at Support

Be on the lookout for stocks that have pulled back from their recent highs to their support levels at either a trendline or 50-day moving average.  The chart of Goldman Sachs (NYSE:GS) is a good example of what we are looking for:

As you can see, GS is pulling back to support at its trendline channel and close to support of the 50-day moving average.  And if the market gets closer to support at the bottom of its trendline channel, then you have all the right conditions for a good long side trade.

And Goldman’s not unique. There are tons of similar plays out there right now – it’s just a matter of opening your favorite charting program and mapping out trendlines.

Sincerely,
David Grandey
AllAboutTrends.net

October 28, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media. Special Report: Imagine Getting Rich as Ignored Stocks Soar- How you could turn $200 into $1.2 million!

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