Is the life of technical analysis in the stock market over?

According to Tejaratnews, after the unexpected behaviors of the stock market in the period from April to August 19 last year and the legendary growth of the total index and the subsequent succession of the stock market, technicians’ analyzes and forecasts of support ceilings and floors did not materialize as before. The overall index repeatedly broke expectations and experienced unexpected falls. Now the question is why technical analysis does not work like in the past in the stock market?

Ali Cheshmi, a faculty member of Ferdowsi University, said in this regard: “Technical analysis is useful, it examines the levels of support and resistance, various trends or indicators, and is recognized as a science.” It answers in the world stock market and it is somewhat responsible in the Iran stock market.

He continued: “Technical analysis is useful because it can show the tendency to stocks, short-term and long-term memory of the stock market and excitement.” Also, using these analyzes, we can ensure the loss floor and the profit trend, and all of these are positive aspects of technical analysis.

The economist stated: In the Iranian stock market, due to macroeconomic variables, the situation of industries and technical analysis, there is no answer. In addition, shortcomings such as the amplitude of the oscillation do not allow trends to proceed at the appropriate speed. There are players in the stock market who are disrupting trends. Some stocks are also marketed and controlled. Also, government institutions or those close to the government manipulate the index-making stocks because they want to embellish the whole index.

He continued: “As a result of all these cases, the processes are distorted and sometimes the technical analyst is captured by his analyzes.” From April 1999 to August 10, the emotional index increased and there was no technical sign that the index would return. The resistances were broken one after the other, and the impression was that the index was standing high, signaling and returning, but the index fell in one day and did not give many a chance.

Technical analysis needs to be reviewed

Cheshmi stated: The current situation is similar to August 1999, but vice versa. Technical analysis based on the trends it draws does not reach any signs and the predictions and expectations are not met like last year.

This faculty member of Ferdowsi University said: “On the other hand, we are very active in the Iranian stock market due to variables such as Borjam and..” In this situation, the general indicators and general basic criteria are important, but in the Iranian stock market, the basic criteria can not be analyzed.

The economist continued: The ratio of P to E stocks is important. But in Iran Stock Exchange, the ratio of P to E in the financial sector (banking symbols, insurance, etc.) in which this ratio is insignificant is combined with the P to E of non-financial companies. Therefore, this criterion is also distorted and the fundamental factors lose their effect in the analysis too much. In this situation, we can not say exactly whether P to E is appropriate for the market or not.

Cheshmi stressed: “Technical analysis is a science, but considering all the conditions such as forecasting inflation, currency exchange rates and… technicians should review their analysis and predict the return point of the index with all the conditions.” But sometimes we see that analysts are caught up in their predictions. A number is announced for the total index, and this number is repeated so much in the media and که that it is achieved despite the market direction.

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