NEW YORK — Support levels. Moving averages. Breakouts.
That strange language is being spoken more forcefully on Wall Street these days. It is the language of technical trading, which is helping to drive recent wild gyrations in stock prices.
Within hours, stock prices have been leaping and falling in 300- and 400-point bursts.
Technical traders all but ignore fundamentals, such as corporate profits or expected growth rates. Instead they rely on stock-chart analyses that signal when to buy or sell the entire U.S. stock market.
In the absence of clear signs about the economy’s direction, more of Wall Street is turning to technical trading and magnifying volatility. It’s further intensified by computers programmed to analyze charts and execute trades.
“You have to have some idea of earnings and multiples for fundamental analysis,” said James Masserio, the head of equity derivative trading at Credit Suisse. “But now there is essentially no clarity on future earnings for the next six to 12 months.”
When traders can’t forecast the future, they turn to what has happened in the past.
“Technical analysis at its heart is just a graphical representation of human emotion and psychology,” said Richard Ross, a global technical strategist at Auerbach Grayson, a New York- based broker.
He says price charts show that markets — and investors — follow reliable patterns.
Technical trading is based on the idea that price history tells an investor all that he or she needs to know.
Alternatively called chartists or technicians in the language of Wall Street, most investors who make decisions based on these strategies focus on the point level of the Standard & Poor’s 500, which represents about three-fourths of the total value of the U.S. stock market. Chartists think it’s a clear sign the stock market is headed for additional losses when the S&P 500 dips below a recent low.
