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Secret 24

Limit moves are important indicators of support and resistance

When a market is bid limit up or offered limit down (for those markets that still have limits, for example the cattle or corn), this is a level where you could be unable to buy or sell. There is more demand at the limit-up price than available supply or vice versa. The market “should” continue in the direction of the limit move. On corrections, it should find support above the limit price (or below if a limit-down move). Watch for this. If a market again trades under the limit bid price or above the limit offered, go with the flow. These are trades that possess reasonable risk, because they indicate the previous support or resistance is now absent. If anyone can now buy a market where it previously was unable to be bought (or sell where you previously couldn't), this is a major sign of weakness or strength.

Here's one example from my memory: The day before the high price was hit in the big bull corn market of 1996, a trader was unable to buy corn. It was not only limit bid, but there were more than 30 million bushels wanted with no sellers at the limit price. A few days later, the market crossed under the limit bid price, and anyone could buy as much as he wanted. After it crossed that price, the market never saw the light of day. It started on a bear-route, one that lasted for six months and didn't end until prices were $1.50 per bushel lower.


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