Call up a one-year chart of the NASDAQ Composite index and you’ll notice a line of support and resistance around 4,900. Extend the chart to cover three years, and a second support/resistance line appears at approximately 4,600. Those support/resistance areas may not be not completely attributable to randomness.
The authors of a manuscript accepted by the North American Journal of Economics and Finance found evidence of barriers existing in the NASDAQ Composite (payment required). The index is less likely to close near a level ending “00” than at one further away. Rather, the theoretical most likely close is at a level ending in approximately “60.” Statistically, the NASDAQ has a higher chance of closing at, say, 4,560 then at 4,600.
No matter how the researchers tested the data, they came up with the same findings: the index is less likely to close within a 10-point range of a number ending between 95 and 04 (e.g., 4,595 to 4,604). Even rescaling the index values did not refute their findings. Future analysis might, but for the period of 1990 through 2012, the researchers give evidence to the existence of such “barriers.”
More on AAII.com
- 15 Short-Cuts and Biases That Lead to Bad Investment Decisions – Biases of measurement are just one of the common mental errors investors engage in.
- To Trend or Not to Trend – Ray Rondeau discusses how support and resistance barriers can be used to identify a stock’s price trend.
- How Do You Identify Support and Resistance Levels? – See how members responded on the AAII.com message boards.
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The Week Ahead
Several retailers will report earnings, including Dow Jones industrial average component Home Depot (HD) on Tuesday and fellow S&P 500 members Target (TGT) and Lowe’s (LOW) on Wednesday. A total of 50 S&P 500 member companies are scheduled to release their results.
The first economic report of note will be the February PMI Manufacturing Flash, released on Monday. Tuesday will feature January existing home sales, the Conference Board’s February consumer confidence survey and the December Case-Shiller home price index. January new home sales will be released on Wednesday. Thursday will feature January durable goods orders. January personal income and spending, January international trade data, the first revision to fourth-quarter GDP and the University of Michigan’s final February consumer sentiment survey will be released on Friday.
Four Federal Reserve officials will speak: Richmond president Jeffrey Lacker and St. Louis president James Bullard on Wednesday and Atlanta president Dennis Lockhart and San Francisco president John Williams on Thursday.
The Treasury Department will auction $26 billion of two-year notes on Tuesday, $34 billion of five-year notes on Wednesday and $28 billion of seven-year notes on Thursday. Additionally, $13 billion of floating two-year notes will be auctioned on Wednesday.
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