You're probably familiar with technical analysis ("TA"), a kind of investing strategy that focuses on stock-price movements, graphs, and charts. Some swear by it, while many, like your friends here at The Motley Fool, generally disdain it.
If you're into it, you'll find lists of stocks that are "breaking out" at sites such as stockta.com. Obagi Medical Products
Now, I could begin my usual head-shaking at TA, muttering that it seems crazy to make lots of short-term investments based on factors other than the companies' actual business operations and financial health. But instead, let me point you to a new study I read about.
Ben Marshall, Rochester Cahan and Jared Cahan recently released a report titled "Technical Analysis Around the World: Does it Ever Add Value?" In their conclusion, it generally doesn't. Marshall and the Cahans based their findings on their investigation of the effectiveness of 5,806 technical trading rules (such as moving averages and support and resistance analyses) in 49 international markets between 2001 and 2007. The levels of effectiveness that they found turned out to be roughly what you'd get from random occurrences, suggesting that the TA wasn't adding anything.
Still, supporters of TA may be happy to learn that "we cannot rule out the possibility that technical analysis complements other market timing techniques or that trading rules we do not test are profitable." (Of course, market timing itself is problematic, since no one can consistently and correctly predict what the market will do in the short run.)
For some opposing points of view, drop into our Technical Analysis Trading discussion board.
Further Foolish takes on TA:
For recommendations of stocks that have been studied in a fundamental manner (in other words, their actual businesses have been evaluated), I invite you to test-drive, for free, our Motley Fool Inside Value newsletter, which seeks out undervalued bargains.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Hercules Offshore is a Motley Fool Hidden Gems recommendation. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.
More from The Motley Fool
What to Expect From Amgen, Inc. in 2018
California's biggest biotech is poised for an eventful 2018. Here's what you need to look out for.
Better Buy: GlaxoSmithKline plc vs. Eli Lilly
Both big pharma stocks have growth drivers. But both also come with baggage.
3 Reasons Not to Max Out Your 401(k) This Year
That's right -- sometimes it pays to keep some of your money away from your 401(k).