The importance of the 52-week high

ID-10013889On my weekly posting covering the current best stocks according to my indicator analysis, I frequently discuss the 52-week high. A reader recently asked me why I consistently mentioned this metric.

I have discussed earlier that being a successful and confident investor requires that you be able to interpret a stock chart. You don’t need to be a technical investor, but you need to know some of the basics.

One of those basics is that you need to know resistance levels. Resistance levels and support levels are simply the changes in direction that the stock has taken lately. When a stock starts going up, pauses, and then starts to go back down then it has set an upper-resistance level. Similarly, when the stock goes down, pauses, and starts going back up again, then it has set a support level. It is the nature of stock investors to fear these levels as stocks approach them again. You will find a natural hesitancy to go above the resistance level or below the support level in the following weeks and months.

The 52-week high is a natural resistance level that is quite significant and often scares investors. When the stock does go above a 52-week high then investors are unsure where it can go. They often become hesitant to continue to invest. You may also find that the stock will grow rapidly as there are no immediate resistance levels in the near future.

The strength of the 52-week high resistance is even stronger if it is relatively close to today’s date. If the 52-week high was 51 weeks away then that the resistance is not nearly as strong as if it is only two weeks away.

It is important to remember that some investors purchased the stock at that 52-week high. Therefore, if there are no other detracting events or news, the stock is worth that 52-week price. After the stock has pulled back from its 52-week high and paused at a lower range for some amount of time, there is a natural attraction for the stock to return to that peak and or exceed it.

For this reason, my weekly indicator thoughts often reference the amount of time since the 52-week high. I also mention the stocks eagerness or hesitancy to reach the peak number. These time-frames and actions are an important tool to understand the emotion of the investor community.

My weekly investor thoughts are available for everybody to read on this site. However, in order to see all of the details of the comments you will have to own my book, The Confident Investor.  You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

Image courtesy of Idea go / FreeDigitalPhotos.net

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