Page 353 - THE MARKET WHISPERER

THE MARKET WHISPERER 34 9
Behavior of TEVA at a Round Number

In the daily chart, we can see the behavior of TEVA over three years. Twice
on its way up, it ceased progress at the round number of $50. The first
time, in January 2008 [1], it dropped back to $43; the second time, a month
later, it dropped back to $36 [2]. The third time, 18 months from the first
attempt to break the $50 mark, buyers finally succeeded in outweighing
sellers and the stock rose. Automatic orders fixed at the round number by
sellers succeeded in holding the stock back for a full year-and-a-half!

How do we, as traders, make use of the round number phenomenon? If

you bought a stock and are considering when to execute a partial (lock in

part of the profit), you need to consider the option of setting your order at

one or two cents below the round number, staying wary of the fact that the

stock may be likely to fail there. As it reaches the round number, you need

to keep your finger on the mouse and check the quantity of buyers and

sellers carefully. Give the stock a chance to move past the round number,

since if it does, the momentum of success may send it into highs of several
tens of cents. But at even the most minimal sign of failure, lock in the gain
immediately. On the other hand, if you have decided to buy a stock which
is currently being traded just below the round number, it is preferable to

wait until that round number is passed.