Support/resistance levels are an important fundamental of technical analysis from which many other concepts/tools/indicators can be overlaid to create more powerful market analysis.

Let's look at the recent face-ripping rally in the Russell 2000 (IWM):

Click to enlarge

IWM_Daily_10.22.2014

IWM found support near the 110-111 area many times earlier this year, therefore it is no surprise that yesterday morning's rally came to a halt right at the edge of the previous support zone, and the daily candlestick formed was of the bearish engulfing variety.

The concept behind previous support becoming resistance is quite logical; many investors are long from the previous area of support and when the support is breached they are  suddenly in money losing positions.  They are quick to sell when the market rallies back up to near their break-even price.

Utilizing basic Fibonacci retracement levels we can see that the IWM snap-back rally also stopped after retracing roughly 1/2 of its recent losses:

IWM_Fibonacci

Notice that the 38.2% retracement level is now acting as minor support. These are the important levels to watch over the coming days:

Resistance - 111

Support - 109, 107, 104