This Alchemy May Yield Real Gold

Technical analysts--the Street's soothsayers--get a vote of confidence from MIT rocket scientists

Technical analysts don't get no respect. Academic economists consider their game--predicting stock prices by studying charts--on a par with examining the entrails of a freshly slaughtered goat. Conventional economic wisdom says that stock prices already reflect all relevant information, so past movements are no clue to future ones. Even if stock prices are a little predictable, say most economists, you won't get anywhere by poring over charts for such technical-analyst arcana as "rising bottoms," "double tops," and "head-and-shoulders formations." Burton G. Malkiel, author of A Random Walk Down Wall Street, writes that "under scientific scrutiny, chart reading must share a pedestal with alchemy."

To continue reading this article you must be a Bloomberg Professional Service Subscriber.