Technical Analysis in Rotational Trading
Academic finance is replete with studies supporting or denying the existence of serial correlation in securities prices1. In effect, such studies test the weak form efficient market hypothesis (EMH). Simply put, can investors use technical analysis to beat the market?
Before we attempt to answer that question, we must define “the market”. For purposes of this paper, we define “the market” as the constituent stocks of the S&P 500 Index. The S&P 500 index is, after all, probably the most widely recognized market proxy, and in practice, investors index billions of dollars to it. S&P 500 stocks are liquid and extensively researched by a multitude of technical and fundamental analysts. Consequently, one might expect that these stocks would represent a highly efficient segment of the stock market.
