Can someone explain this better?

CFA Level I
#1

The resistance level signifies the price at which a stock’s supply would be expected to:

A) decrease substantially. B) cause the stock price to “break out”. C) increase substantially.

Your answer: A was incorrect. The correct answer was C) increase substantially.

Support and resistance levels. Most stock prices remain relatively stable and fluctuate up and down from their true value. The lower limit to these fluctuations is called a support level – the price range where a stock appears cheap and attracts buyers. The upper limit is called a resistance level – the price range where a stock appears expensive and initiates selling.

Generally, a resistance level tends to develop after a stock has experienced a steady decline from a higher price level. Technicians believe that the decline in price will cause some investors who acquired the stock at a higher price to look for an opportunity to sell it near their break-even points. Therefore, the supply of stock owned by investors is overhanging the market. When the price rebounds to the target price set by these investors, this overhanging supply of stock comes to the market and dramatically reverses the price increase on heavy volume.

I dont get why its C

#2

The resistance is an upper limit, and typically the stock doesn’t rise above it (that’s why it’s called a resistance), and price movements are determined by excess demand or supply, so there must be excess supply if the stock price is being depressed.

#3

Question asks what would happen in terms of the “stocks supply” not its price…at resistance level, people value the stock as expensive and sell their stock to gain profit… this selling of stock increases supply!