Vive La Resistance!

Like any good metaphor, the classic trope one man's ceiling is another man's floor is loaded with meaning. 

Depending on how you unpack it, it might be teaching us to always be aware of our surroundings, to be respectful of others, to avoid rushing to judgement, or to understand that we don't all excel at the same things and in the same ways, among many other pearls of wisdom.

We can easily apply any interpretation of this saying to the stock market, especially if we consider the idea that one day's support is another day's resistance. Indeed, an area we would have bought on one particular day, might become an area we'd sell in the near future.


Take the United States Oil Fund ETF USO, for example, which tracks the movements of the crude oil markets. USO went from a low of around $65, right before Russia invaded Ukraine on February 24th, 2022 and ran all the way up to $87.84 on March 8th, stoked by rising gas and oil prices as a result of Russia's attack.

As seen on the chart to the left, USO then had a rapid decline over the course of seven trading sessions to $68. before firming up and ebbing and flowing between $82 and $72. 

After settling into a range, a stock will usually trade between sets of prices until something occurs that sends the stock through one end of the range or another. Times like these are when the picking seems easy. Buy low, sell high, it's as simple as that. But a circumstance will invariably occur that alters the market's course and with that stocks will follow. A security such as USO, which is subject to the whims of the volatile oil market is especially sensitive to such swings.

When a stock breaks out of its range and makes a heady move either up or down, an area that would have previously been a buy, for example, ends up becoming a sale if the stock breaks out to the downside. The 5-minute intraday chart for USO above shows areas of support at $78, which were put in place after it ran up to above $83. A buy near the $78 support level on March 25th provided a stout rally up to $81.64 during the course of the day. However, when USO gapped lower next session and sold down to $76 right after the open, thanks to a huge premarket sell-off; $78 became a low-risk area of resistance.

Generally speaking, a formation on which to base a trade requires a point of reference such as corresponding highs and lows, as well as a clear stop. If looking to buy support in USO at $78 before the gap pushed it lower, there were multiple points of reference at $78 as seen towards the left on the chart above. A stop would have been slightly below $78. But once the gap occurred, $78 became the resistance, again using the old support level at $78 as the point of reference with the stop now being slightly above that price point.

A price on a stock chart is usually significant if it's backed up by a solid formation, and that can work from the long side as well as the short. Recognizing the formations that appear at certain price points will lead to profitable trades, whether trading from the ceiling or the floor.




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