How does one calculate or estimate the "overhead supply" and/or "congestion" you often speak of in the newsletter? (May 5, 2001)

  Overhead supply are points where the stock was purchased before it began a drop or correction. We will see a stock try to rally, but then fail and fall below its previous low. The point where the buyers ran out of steam and the selling started is the point of overhead supply. There are those who bought in at that point and will unload when they get the chance. There is no record of how many shares there are outstanding at the level (at least not cumulative) so we look at how long ago it happened and the stock's action since then. The longer the time the more likely those buyers got frustrated and sold. We know it is gone if the stock rises and breaks through those levels with good volume. Congestion refers to a level where the stock or index traded at many different prices but all within a relatively narrow range. The more often a stock trades in a range, the more that becomes support or resistance. If there are a lot of trades at different levels in a narrow range, the range represents potential support or resistance.


Previous Page Next Page

Return to Table of Contents


Legal Disclaimer