The development of support and resistance levels is probably the most noticeable and reoccurring event on price charts. The penetration of support/resistance levels can be triggered by fundamental changes that are above or below investor expectations (e.g., changes in earnings, management, competition, etc) or by self-fulfilling prophecy (investors buy as they see prices rise). The cause is not as significant as the effect–new expectations lead to new price levels.

This example shows a breakout caused by fundamental factors. The breakout occurred when Snapple released a higher than expected earnings report. How do we know it was higher than expectations? By the resulting change in prices following the report!

Other support / resistance levels are more emotional. For example, the DJIA had a tough time changing investor expectation when it neared 3,000.

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