Horizontal resistances and supports

The notion of supports and resistances is one of the key
points of technical analysis. It is mainly based on the idea that buying and
selling decisions are partly due, on both the individual and market levels, to
psychological reasons.

Thus, thresholds effects can be very effective. A
level is considered as a support if, every time a stock tries to break
this threshold down, the stock does not achieve that and heads back up. If
we take the example of Vivendi (cf. graph), we can see that the stock came on
the 100 EUR level several times in April and May, therefore 100 can be
considered as a support.

We also can find psychological levels on the upside,
preventing the stock from rising above certain levels: they are then called
resistances. We can for example identify a resistance in the 100 EUR area
for Casino, as shown opposite.

However, these levels, once tested, can be crossed up or down
and thus get the opposite function. For example, on the Alcatel stock, the 50
EUR was used to constitute a resistance. Still, it was finally crossed and
turned into a support.

L’existence de telles figures tient lui aussi au principe
de mémoire des marchés. En effet, les investisseurs se souviennent des
points de retournement antérieurs et sont ainsi en mesure, à l’approche de ces
niveaux, de se positionner en conséquence. Ces anticipations deviennent de la
sorte auto-réalisatrices, et renforcent un peu plus la valeur du seuil, support
ou résistance. Dans le cas d’un support, ce sont les acheteurs qui exercent leur
mémoire et prennent le dessus, tandis que ce sont les vendeurs qui l’emportent
dans le cas d’une résistance.