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Ken's Mailbag Q&A 10/14/11 - What is meant by "overhead supply"?
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


Subscriber Question:

October 13, 2011

Dear Ken,

Can you please tell me what you mean by no resistance remains due to overhead supply when adding notes to a stock?  Thanks so much for your time.

Doug 

 
Ken's Response:

 October 14, 2011

Dear Doug,

Thanks for writing in with your question.  The index in the 4th edition of "How to Make Money in Stocks" refers us to pages 149-150 for insight into the question, "What Is Overhead Supply?"  It is explained that, "A critically important concept to learn in analyzing price movements is the principle 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." 

Human nature typically prevails, and many times investors who bought a stock at higher prices are motivated to sell when they can finally get out of it somewhere near their break-even point after having been down a large amount.  These investors are a source of resistance as a stock tries to advance.

Good chartists do not make the mistake of buying a stock that has a large amount of recent overhead supply.  Of course, a stock that has just broken out into new high ground for the first time has no overhead supply to contend with, which adds to its appeal.

Best regards,

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

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