Support and resistance levels. Most stock prices remain relatively stable and fluctuate up and down from their true value. The lower limit to these fluctuations is called a support level – the price range where a stock appears cheap and attracts buyers. The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling.
Generally, a support level will develop after a stock has experience a steady decline from a higher price level. Technicians believe that, at some price below the recent peak, other investors will buy who did not buy prior to the first price increase and have been waiting for a small reversal to get into the stock. When the price reaches this support price, demand surges and price and volume begin to increase again.
Generally, a resistance level tends to develop after a stock has experienced a steady decline increase from a higher lower price level. Technicians believe that the decline increase in price will cause some investors who acquired the stock at a higher lower price to look for an opportunity to sell it near their break-even points. Therefore, the supply of stock owned by investors is overhanging the market. When the price rebounds to the target price set by these investors, this overhanging supply of stock comes to the market and dramatically reverses the price increase on heavy volume.
When the spread between high quality and low quality bonds widens, the confidence index decreases, indicating a bearish market (and likely decreased demand for the stock).