Reading the stock market tea leaves

The Indicator from Planet Money

NPR

Business

4.7 • 9.2K Ratings

🗓️ 6 December 2022

⏱️ 10 minutes

🔗️ Recording | iTunes | RSS

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Summary

Technical analysis, or finding patterns in stock charts to predict future price movements, is like cloud watching: You can see pretty much anything if you squint hard enough. Even a vomiting camel.

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Transcript

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0:00.0	NPR.
0:09.0	There is a type of financial analyst who takes stock or bond price charts very seriously.
0:18.2	They take out their pen and they find patterns in the lines and they draw these pictures
0:22.8	and they give them names like a top.
0:25.4	That's where a stock price peaks before going down again.
0:28.6	There's a head and shoulders pattern.
0:30.6	That's another one where the chart peaks a few times and pay attention because that is
0:35.4	thought to signal a major reversal in a company's price.
0:39.4	This is called technical analysis or chart reading.
0:43.8	It's been around in some form or another since at least the 1600s and it's based on the
0:48.3	idea that past company prices can help you predict future prices and then make money off
0:54.2	that.
0:55.2	Academic evidence doesn't really support chart reading.
0:58.9	These charts are not good predictors of the future.
1:02.8	But yet when you flick on the financial news like CNBC.
1:06.7	It's making what looks like a head and shoulders formation.
1:08.9	You see it.
1:09.9	You see it.
1:10.9	You see it.
1:11.9	You see it all the time.
1:12.9	It's forming a beautiful cup and handle on the bullish panic pattern.
1:15.5	There are shapes and there are doodles that are hoping to help people get rich.
	...

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