Technical Analysis as an Indicator

Personally I’m very skeptical of technical analysis, but that’s just because I am skeptical of easy answers. But try to parse this article over at bloomberg titled “Stock Charts Fail Forecast Test in Complete S&P Miss.”

We begin with

Ever since the Standard & Poor’s 500 Index peaked in October 2007, six of eight strategies — which are supposed to make money whether stocks rise or fall — failed, according to back-testing data compiled by Bloomberg. As the bear market erased $11 trillion from the value of U.S. equities, buy and sell signals from those six technical indicators produced losses of as much as 49 percent, the data show.

Spot something of interest in the wording there? The idea that the techniques used are “supposed to make money whether stocks rise or fail” is, well, a pretty high standard (especially during a 50 percent nose dive in the S&P 500.) Now move to the end of the article where some tables of data are presented:

Indicator                              10/09/2007 - 3/09/2009
Relative Strength Index                                -49.0%
Williams %R                                            -41.7%
Commodity Channel Index                                -38.7%
Parabolic Systems                                      -36.6%
Bollinger Bands                                        -31.5%
Stochastics                                            -24.1%
Directional Movement Indicator                         +24.0%
Moving Average Convergence/Divergence                  +25.9%
S&P 500                                                -56.8%
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