Why are value investor types so rigidly opposed to TA?

[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.

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how do you know when this will happen beforehand?

Barron

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I don´t quite understand what you mean. I just tried to explain why often a stock trades in a range $80-$100 and then "explodes" to $115.

Given the above scenario, I know it is an increased chance of MSF making a price jump once it trades at $101, because of the mental states of the buyers and seller.

So one technique to capitalize in this market imperfection would be selling MSFT short at $97 with a stop-and-reverse order placed at $101. Target levels would be $85 for the short order, and maybe $112 for the long position if that is executed.

Did I misunderstand your question?