Why are value investor types so rigidly opposed to TA?

[Macce]

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I think some of those folkes (inc. "The New Market Wizards" interviewees) are now busto.

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No they are not, but let´s assume they are. Even then, it still provs that TA worked out for them while building their fortune. Market conditions maybe changed and they did not react to that, or they used to high leverage and went broke, like a lot of the very best poker pros has done. That still does not make them losing players, and it still makes the market wizards winning traders by using TA.

And if TA did work for in the 80´s and 90´s, it sure as hell works nowadays too.

Here is the locigal explanation why TA work:

Lets says the MSFT stock (Microsoft) trades for $100 for a long period of time. People buy and sell, so there are two camps out there, those who sold, and those who bought. Then the price falls to $80, and all the sellers are glad they got out at $100 and are reluctant to buy MSFT again. The buyers on the other hand, are paying very close attention to the market and decide that MSF is such a solid company, that they will not sell now at a loss. They decide to put it away and try to forget it.

Now some time later, MSFT price has picked up and is approaching $100. The people that has been in for the ride down to $80 is now paying very close attention again, and are on average a bit more inclined to sell at $100, since people really like to get out at break even when they can. The former sellers at $100 however, are not more inclined to buy back when MSFT is trading at $100 again, because they feel they almost got burned last time, and selling was the right move then, so buying is definately the wrong move now.

And wham, there you have it! It's a slight differentiation in buy vs sell pressure now, and $100 has become a resistance level for MSFT. Every time is reaches $100 in the future, it will experience a little added selling pressure that will stack the odds against that stock going up.

This is exactly why prices has a tendency to bounce at the same levels many time.

There are actually logical explanations for all technical patterns like trends, breakouts, fibonacci levels and ranges as well, but they are bit more complex then resistance.

[DcifrThs]

how do you explain when something "blows through" a resistance level?

Barron

[Foghatlive]

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how do you explain when something "blows through" a resistance level?

Barron

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Enough new demand has been generated for the stock so that the Specialists and MMs can absorb the overhead supply at 100 without their inventories taking a serious hit.

[Macce]

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how do you explain when something "blows through" a resistance level?

Barron

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Just put yourself in the position of the sellers and buyers, and you will figure it out.

What happens is that lets say MSFT reach $100 again and the added selling pressure puts the price back to $80. Then eventually the price reach $100 again and the sellers are still glad they sold for $100 since it seems that MSFT are "not worth" more then $100. The buyers at $100 are glad to be break even and some sell and some dont. But then all of a sudden, MSFT starts to reach $102, $104, $108 and then the sellers at $100 instantly realizes "Holy crap, I should never have sold that darn fine stock MSFT" since they now would have had a win. They seriously consider buying the stock back, despite the higher price, and many do. That leads to added buying pressue.

Also the old buyers at $100 (both times) are finally seeing some profit after a long time of red figures, and they are reluctant to sell now ("I knew I was right to hold on to this baby!"). That adds to the lack of selling pressure.

So this is a situation where pretty heavy price movements can occur in short time, often referred to "blow outs" as you said yourself.

Same thing when a stock price reach ATH (all time high). Then there is not a single stock owner who has a loss. Every single share owner is seeing a profit, and since there is noone to sell to get break even, you very often see a price rush when an old ATH is passed. Look for yourself.