Support Levels in Financial Analysis | CFA Level 1 Exam Preparation

Support Level Explained | CFA Level 1 Exam Prep

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A support level -

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A. is the price range below the current price at which the technical analyst would expect the stock to get an added boost of demand, keeping its price from falling below that range. The support level is usually near the 12-week low.

B. is the price range below the current price at which the technical analyst would expect the stock to get an added boost of demand, keeping its price from falling below that range. A support level usually develops after the stock has had a meaningful price increase, and has begun to experience some profit taking.

C. is the price range above the current price at which the technical analyst would expect the stock to get an added boost of demand, pushing it to even higher prices. The support level is usually near the 52-week high. Investors tend to expect a stock that has broken through its 52-week high to continue increasing.

D. is the price range below the current price at which the technical analyst would expect the stock supply to increase, pushing down its price below that range. A stock nearing that range would be a good candidate for short selling because of the negative price support that it would receive.

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Explanations

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A. B. C. D.

A support level is viewed as something of a safety net by technical analysts. They believe that at some price range there will be an increase in demand by investors who did not purchase the stock prior to its price increase and who have been waiting for a small reversal to invest. When the stock price falls within that range, there will be a surge in demand as they purchase the stock.

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