This write-up is a demonstration of concepts of Support (S) & Resistance (R). We choose REC as an example. We will examine whether the concepts of S and R are useful in terms of predicting future movement in stock prices.
Figure 1
On 11.8.2009, from a support level of Rs.183, share price of REC faced a resistance at Rs.222 and then fell. It found support at Rs.196 levels thrice in September 2009, but was not broken, It also could not break the resistance of Rs.222 during this period. Then once it broke away from this resistance level, and found this level as support in February 2010, it was time for the stock to move up. And it did!!
From October 2010 the price of this stock started falling in a sequence of Elliot Waves, but again found support at Rs.222 levels. It bounced up and then violated this support in May 2011. It bounced back, but this time, the Rs.222 level had turned into Resistance. It broke the second support at Rs.196, but has found support at the Rs.183 level. If on the bounce back, it breaks the support at Rs.196 level, then it will also test the support of Rs.183.
I would advise investors to hold on for a few days. The turnaround of this stock has not started yet. On the basis of S and R, we should be able to spot a turnaround.
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