taxman - I think you misunderstood. "Kept above 80" - I meant it did not close below 80.
The significance is psychological to begin with. As a trader, I watch that very carefully, and it guides my trading - and I'm not the only one. Institutions trade stocks all the time, and use technical indicators in trading. This influences the short term price action in a stock. Note I said "short term" - obviously, longer term, all trading is just noise, and the price is determined by fundamental business considerations more than short term trading trends. Which is why in my earlier post, I said "short term" bullish based on today's action.
As a trader however, this is important for me. If it fell below 80, it would establish 80 as a significant resistance level. The more often it failed to close above 80, the stronger the resistance would be. And that would be bearish, because at 79+, if it can't break 80, there is nowhere to go but down. That is exactly what happened to MSFT at 90. Conversly, if it stays above 80, and every time it goes down toward 80, it bounces right up again, 80 will become support. And 80 used to be support for quite awhile before it broke. How does it work? Very simple. Traders (individual as well as insitutional), set these levels as trading points. When MSFT was trading above 80, and on a couple of occasions it bounced off 80, and back up, immediately, traders perceived that as a support level. So, when I was trading MSFT, I'd put in a buy order, every time it got close to 80. Then I'd ride it up to what was the "resistance" level - and I'd put in a "sell" order. Now multiply that by a huge number of traders and you can understand why the stock bounces off support - there is a huge number of "buy" orders when the price falls to that level, and so that immediately drives the price back up. Same, for resistance - sell orders bunch up, and it becomes increasingly difficult to break through resistance.
Why 80? Variety of reasons. There are two types of support and resistance levels. "Deep", and "trading". Deep support/resistance levels are established during periods of time when heavy buying/selling occured at a particular level - institutions have buy/sell programs set at that level, a huge number of investors jumped into a stock at a particular level, and so will be sensitive to watching their gains go to zero, as the level approaches AGAIN (or conversly, they've been conditioned to expect that at *this level* the stock tends to go up). When you have large number of shares involved, that becomes a fact of trading - and so a given price level becomes important. That's deep support/resistance. Trading support can be broken down into two categories: technical and retail. Technical support/resistance is when large number of traders and/or institutions put in buy/sell orders around levels identified by TA - most common is 50, 100, 200 moving average etc. levels. That's why you will see stocks behave in ways that are statistically significant and not completely random. Traders from all over the country identified the 50 day moving average, and immediately put in their orders - well, the stock can't help but react... it becomes a self-fulfilling prophesy. Finally, retail trading support/resistance levels tend to be coalesce around a "round" number, such as 80. Before you laugh - check out the charts and you'll see it holds true. I use this all the time in my trading. I made a ton of money on NITE the last few weeks, because I traded with the following numbers in mind 90, 100, 110, 120, 130, 140, 150, 160. Is it irrational - sure, but I don't care, I take advantage of this FACT. MMs know very well that it is human nature to glom onto a "round" number. That is why, you will often see a HUGE number of shares trade when a stock hits one of those numbers. People simply have them as targets. And they often say: I'll buy if it hits 80. Not 80 1/16 or 80 3/8. That's why you see so much more volume around the round number. And they set STOPS at round numbers. MMs know this, and often drop the price of a stock just for a moment in order to "take out" all those poor sheep who set thousands of "stop" orders at the round number. That is why IF you use stop orders, you should NEVER set it at a round number, because MMs will most likely take you out. Thus, instead of 80, I'd set my stop at 79 13/16 (so happens I use mental stops, but that's a different matter).
Bottom line, taxman, there are VERY VERY GOOD REASONS why:
<<but who cares? why is 80 any more significant than 80.0625?>>
A LOT of people care. And 80 is A HELL of a lot more significant than 80.0625
Did this help?
Regards,
Morgan
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