Support and Resistance Example, Lehman Brothers Brankruptcy

The following stock chart of Lehman Brothers (NYSE:LEH) offers a great example of simple support and resistance. Support and Resistance is a basic form of technical analysis used commonly every day to mark potential buy and sell points on a stock chart.

Lehman Brothers is a good stock chart to observe for both new and seasoned investors because the recent Lehman bankruptcy offered three key sell signals for investors on the way down.

Note: This chart of Lehman Brothers is a 16 month daily stock chart:

lehman brothers stock chart

1. The blue 1 show us how at the end of February Lehman stock fell through its first key support trendline at $50. This was a big sign that the bears had control of the stock and longs should get out.

2. The blue 2 shows us where Lehman eventually collapsed below its 2nd major support trendline at $35. This was another key sign for investors to get out of the stock.

3. The blue 3 shows the tipping point for Lehman before it moved to pennies. The break below $12 a share was the last major support Lehman had, and the stock never recovered. Bankruptcy shortly followed.

---> Next Chart, A Technical Look at the Washington Mutual Brankruptcy

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Comments

  1. Posted by The Stock Speculator on September 18, 2008 at 12:28 pm

    Great post and such an important point. As a trader you need to recognize danger signs and not fall blindly in love with a trade or idea. By sticking to good sell rules and understanding how support and resistance works not only could you have been out of LEH but profited on the way down by buying puts/shorting. There was no reason to be in LEH on the long side after March 2008.

  2. Posted by Matt on September 18, 2008 at 12:49 pm

    Awesome post Blain, this is fantastic for new traders as they need to learn to know when to call it quits. Even this simple technical analysis could have saved someone a fortune.

  3. Posted by rhinodude47 on September 18, 2008 at 12:53 pm

    Nice clean look at the collapse of this Lehman chart over the last 1.5 years. Pretty interesting how well defined key sell points can be if you follow simple trading rules. Even seasoned investors can find value in this analysis. :cool: