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Technical Analysis- Support and Resistance Levels

At a Support level the market will appear to support further price increases for a given security. With support levels, sellers appear to feel prices are too low to sell. When such a concept occurs, investors refer to this as the market being oversold and buyers out number sellers at these prices. This gets back to the concept of supply and demand. When demand exceeds supply, price increases which is evident in the graph below.

At a resistance level the market will appear to resist further price decreases for a given security. Prices have reached a maximum that buyers are willing to pay and sellers will outnumber buyers. When this is evident, investors refer to this as the market being overbought; supply will then exceed demand and prices will fall slightly.

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