Smith & Wesson Holding Corporation (SWHC) is a manufacturer and exporter of firearms. The Company manufactures an array of pistols, revolvers, tactical rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a variety of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, protection focused individuals, law enforcement agencies and officers, and military agencies in the United States and worldwide.
SWHC was a perfect example of how support and resistance work. SWHC is one stock that have spiked all the way from $2.00 in Feb 09 to $4.00 in March 09, giving investors 100% returns. For a swing trade SWHC is definitely in an overbought category and can see some reversal soon. However for a day trade, SWHC provides an excellent opportunity to go long in the morning and go short in the afternoon.
No matter what experts say, any important round number always provides resistance and support. In case of SWHC today it was the magically $4.50 level. Today morning, this was taken out on the upside. This provided a good support for traders who wanted to go long. As you can see from the intra-day chart, the stock rallied from this position spiking all the way till $4.80, providing easy profits. However the $4.75 – $4.80 level provided strong resistance, and all attempts to break above it failed. Traders eventually dumped the stock and dragged the stock back to $4.50, where it found good support. As most smart traders understand, once the $4.50 is broken on the downside, it is time to sell their open long position or start a short position. The chart clearly shows how once this pivotal $4.50 was taken out, it took a deep dive closing at $4.36 levels again providing easy profits.
Traders should make use of these resistance and support levels to day-trade stocks. Breaking of important price points are indicators of trends to follow.