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Ken's Mailbag Q&A - Concept Of Overhead Supply Explained
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


Subscriber Questions:

June 23, 2009

Ken,

In tonight's "Featured Stock Update" you mentioned that 'No resistance remains due to overhead supply' on NVE Corp. I've seen this comment many times in your writings, but don't really understand what it means. Is this worthy of an 'educational moment' for all members?

Thanks,

Rick

 
Ken's Response:

June 24, 2009

Rick,

Great question, and perfect material for tonight's "Mailbag" section.  The concept of overhead supply is described in How To Make Money In Stocks as "critically important" to learn.   The book warns investors about the "fatal mistake of buying a stock that has a large amount of overhead supply."  Overhead supply is when there are significant areas of price resistance in a stock as it moves up after experiencing a downtrend. Investors who own the stock at higher levels limit and frustrate its upward movement because they are motivated to sell (which is human nature) when they can finally get out and break even.  Supply areas more than a year and three quarters or two years old create less resistance.

A stock that has just broken out into new all-time high ground has no overhead supply to contend with, which adds greatly to its appeal.  In the months ahead, market conditions may allow us to see many stocks reaching new 52-week highs.  Some may emerge from ideal base patterns and be ideal buy candidates even though they may not be at all-time highs.  Our experts will look beyond the past 52-weeks in their analysis, and alert members in cases where overhead supply may be a concern with notes to that effect.

Kenneth J. Gruneisen
Founder & Contributing Writer for CANSLIM.net StockNews
www.canslim.net

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