The Information Content of Daily Market Indicators by Charles N.Dennis

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Louis Bachelier would be satisfied with the findings reported in the John T. Emery article, even though Bachelier wrote in 1900 before there was popular support for technical analysis. Considering technical analysis historically, Dow’s theory was the first popular technical approach, although Charles H. Dow, editor of The Wall Street Journal at the time of Bachelier’s writing, did not consider his theory as a forecasting method.

Later William P. Hamilton began forecasting with the Dow theory, and then, in 1932, Robert Rhea’s publication of The Dow Theory popularized this technical approach. Previously, Bachelier had struck the first blow in an obviously continuous search to execute technical security analysts. (A technical security analyst, often called a chartest, develops esoteric charts or computer prints that he hopes will give him better-than-average performance in the stock market.) In the United States, serious economic tests and statistical technical analysis did not start. until the early 1950s; These academic tests continue today.

Test results support efficient capital market theory or, more directly stated, technical analysis does not lead to higher than average earnings in the stock market. On the other hand, perhaps technical analysis does work, but no statistical method used in testing has discovered this fact. In summary, perhaps our statistical tools are not sophisticated enough to reveal the relationship between stock price and “daily market indicators.”