Support, resistance, and momentum

One of the things that can make markets seem more complicated than they really are is the tendency to ascribe quasi-mystical properties to simple concepts—for example, support and resistance.

There’s no magic involved. Support is simply an approximate price level from which a market has repeatedly rallied in the past, while resistance is an approximate price level from which a market has repeatedly retreated. Support is a price “floor,” while resistance is a price “ceiling”—at least temporarily.

There’s a very logical reason many traders monitor these levels—the expectation (right or wrong) that something that happened in the past will happen again. For example, it’s safe to assume that if a stock has twice rallied 10% or more after pulling back to a certain price, there will be traders contemplating going long the next time it nears that level.  

Boeing’s (BA) recent price action illustrates many of these basic principles. After a 49% October-December rally, the stock gave back three-quarters of the move when it fell to around $200 by mid-January—a level that acted as a price floor over the next couple of months:

Here’s one way to think about BA’s price action during this period. After the stock initially rallied off its mid-January lows (more than 7% in three days), traders and investors who considered the preceding sell-off overdone may have continued to buy whenever shares subsequently approached this level. That means when the breakdown occurred nearly two months later on March 11, there could have been lots of traders scrambling to get out of their long positions, fueling the sharp, multi-day down move that dropped shares to their late-October lows around $176-$177.

The stock’s bounce so far this week notwithstanding, it remains to be seen whether these lows will continue to act as support. But traders who looked into BA’s longer-term price history likely noticed that this level’s role as a price pivot dates back to 2022:

In August of that year, this price level was resistance rather than support, turning back the BA’s rally off its June lows. The stock broke out above this level in late November, then confirmed it as support when it rallied off of it in October 2023.

The point is not that BA is guaranteed to remain above this perceived support—it’s not. But the fact that the stock staged a significant rally off this level fairly recently may at least partially explain the buying that has occurred so far this week.

The level may hold, it may not. Either way, traders will likely be watching it closely, since last week’s sell-off illustrated the type of move that can occur when a market decides a “floor” can no longer hold its weight.

Market Mover Update: Immunovant (IMVT) rallied 14% intraday on Thursday before settling for a smaller closing gain (see “Paying attention to the ‘unusual’”). Gold also jumped in early trading—hitting a new all-time high—before paring its gains. April gold futures (GCJ4) rallied to $2,225.30 before closing below $2,190 (“Gold rushes to records”).

Today’s numbers include (all times ET): Jerome Powell provides opening remarks at “Fed Listens: Transitioning to the Post-pandemic Economy” (9 a.m.).

Today’s earnings include: Biomea Fusion (BMEA).

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