Support and resistance levels!

[MarkedFeed]

Hi everybody,

I started studying Technical analysis books to time the market. One thing that used to bother me and prevented me from reading it earlier were support and resistance levels.

Let me discuss a hypothetical scenario, Say a stock had a support of Rs 100 last year at the same time and now the stock has peaked at Rs 200 and trending downward and next support level is again at Rs 100.

In the context of money, money of Rs 100 last year would have the purchasing power of Rs 110 now assuming a inflation of 10%. In this context I find it very hard even to compare the price levels and simply assume the same price as support irrespective of macro-economic changes like inflation.

My guess is, in the absence of anything substantial to time the market, these tools have become self-reinforcing i.e. more people believe in this and thus those levels hold. Am I true or am I missing something?

Shepherd


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