Looking at Overhead Supply With David Ryan | IBD Live | Summary and Q&A

TL;DR

Overhead supply refers to areas where people bought stocks at higher prices and may sell if the price rallies to that level, affecting future price movements.

Key Insights

• ❓ Overhead supply is an important concept to consider when analyzing stock prices and potential buying or selling opportunities.
• 🎚️ The level of overhead supply can be determined by looking at previous price lows and significant price levels in a stock's history.
• 💄 The presence of overhead supply can create resistance, making it challenging for stocks to rally above certain price levels.
• 🧑‍🏭 Volume and time are factors that can help stocks overcome overhead supply, but it often takes a significant amount of both to break through.
• 😀 Buying stocks that have been down for a long time carries the risk of facing substantial overhead supply.
• ✋ Stocks in new high ground are generally preferred as they do not have the weight of overhead supply.
• ⌛ The longer a stock has been down, the more time it may take for overhead supply to dissipate.

Transcript

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Questions & Answers

Q: What is overhead supply in the stock market?

Overhead supply refers to areas where stocks were previously bought at higher prices and may act as resistance if the price reaches those levels again.

Q: How does overhead supply affect stock prices?

Overhead supply can limit the upward movement of stock prices as traders and investors who bought at higher prices may decide to sell when the price approaches their purchase levels.

Q: What happens if a stock faces significant overhead supply?

Stocks with significant overhead supply may struggle to rally above those levels, requiring either strong volume and demand or an extended period of time to break through the selling pressure.

Q: Why is it advantageous to buy stocks in new high ground?

Stocks in new high ground do not have overhead supply, meaning there are no previous buyers waiting to sell, which can lead to smoother price advances.

Summary & Key Takeaways

• Overhead supply occurs when stocks are bought at higher prices and could lead to selling pressure if price levels reach those levels again.

• The longer and more significant the overhead supply, the harder it is for stocks to rally above those levels.

• Volume and time are two factors that can help stocks overcome overhead supply, but it often takes months or even years for stocks to break through and enter a new phase.