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Technical Analysis Nasdaq-100 Index (NDX100.NAS100)


  Close: 5 583.53 (+12.25), Apr 28, 2017
Chart Technical Analysis Nasdaq-100 Index (NDX100)

Recommendation medium term

Nasdaq-100 Index is within a rising trend. Continued positive development within the trend channel is indicated. Has risen strongly since the positive signal from a rectangle formation at the break through the resistance at 5461. The objective at 5554 is now met, but the formation still gives a signal in the same direction. The index has support at points 5350. The index is overall assessed as technically positive for the medium long term.

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Indicators

Historical development

Period Vol.bal. Volatility Liquidity +/- %
1 day0.000.66%0.00+0.22%
5 days0.002.20%0.00+2.60%
22 days0.005.69%0.00+3.26%
66 days0.0011.80%0.00+9.46%

Risk

Volatility risk: LowLiquidity risk: Not applicable
Risk explanation

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Results: +11,4 percentage points excess return per year

Investtech has worked on research into behavioural finance on the stock market, based on technical analysis theory, since the 1990s. The analyses are tested through model portfolios in six countries and they have all shown solid excess return since the start in 2001. As of January 2017, the portfolios have had an average excess return of 11.4 % per year vs the market and benchmark index. Trading Ideas are avilable for some markets for investors who want higher risk. These have also given solid excess return, but at a high risk. In addition, a wide selection of of research reports show that quantitative analysis has given good results and been a useful investment tool.

After several years of research, Investtech established the investment company Investtech Invest AS in 2009, building on Investtechs quantitative systems. Since the start until January 2017, the company has given an average excess return to its investors of approximately 7 percentage points per year. The companys investments are based on Investtechs investment strategy. This supports the claim that the models also give good results in practice.

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References

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Why use technical stock analysis?

Use technical analysis to:

  • pick winning stocks,
  • keep the stocks long enough, and
  • sell at the right time.

Technical analysis aims to predict future price movements. The prediction is made through understanding investors psychological changes and thereby predicting increasing and decreasing optimism and buy interest. The analysis method is used both on individual stocks and indices.

Through the use of good tools, technical analysis is an objective form of analysis that gives concrete suggestions for purchase or sales. The method is easy to use and does not require great understanding of each company and each stock traded.

Investtechs research shows that this method used over time gives good statistical opportunities to beat the market.

What are possible pitfalls when using technical analysis?

There are two important factors to keep in mind: objectivity and long term perspective.

Objectivity and simplicity are absolutely necessary, which means that analyses and advice have to be specific and leave no room for interpretation. Technical analysis has historically been a big toolbox with a great number of indicators and models with a range of parameters. This gives the opportunity to always find almost perfect models for specific stocks or periods of time, but it will rarely work in practice. It is even worse if working without quantitative tools, i.e. by just looking at the charts, drawing trend lines and identifying support and resistance on your own. You will easily see what you want to see and what fits in with your subconscious understanding of the stock. This can easily lead you in the very wrong direction, and you may end up being ruled by your own emotional fluctuations, such as greed and fear of loss. These are the exact psychological fluctuations we will profit from by the correct and patient use of technical analysis.

A long term perspective is also key. A very important characteristic of technical analysis, of all stock analysis, is the high uncertainty. You will never be especially certain of a specific outcome. Aim to be right a little more often than wrong, or even better, to make a little more money every time you are right than what you lose every time you are wrong. Technical analysis helps you side with the more likely outcomes. If you are right 55 per cent of the time, be happy!

But of course it is the nature of the stock market that maybe 6 of the first 10 trades go wrong, or you lose compared to the market in the first year. It is easy to start doubting the methods.

A common pitfall is changing your strategy and not trusting the statistical results when failing to achieve immediate success. Obtain a solid foundation for the strategy you choose, preferably both statistical/quantitative and through psychological/financial explanations/theory and FOLLOW YOUR STRATEGY.

Is technical analysis enough or should it be supplemented by something?

Technical analysis itself is enough. Some even feel its a disadvantage to use fundamental analysis and paying attention to news streams and forums. It is easy to start doubting technical signals and quantitative recommendations. Technical analysis is based on the principle that all relevant information is expressed through the stock price movements. Profit is made from the lags and overreactions in the market.

Nevertheless, using fundamental analysis in addition to technical analysis may make you more confident about your investments. This may help you sleep at night. Ideally you want to buy stocks both because

1. they are fundamentally cheap and
2. investor demand is increasing.

Investtech recommends analysing insider trade quantitatively, where available, and taking it as fundamental analysis. Insiders buy stocks and put their own money into their own company when they feel the company is fundamentally cheap.

Who should use technical analysis and how do you get started?

We have years of thorough research and results from real investments in the market that demonstrate that disciplined use of technical analysis with Investtechs tools have given good long-term results.

Technical analysis is especially well suited for private investors. Smaller private investors can enter and exit a stock quickly and are thus well situated to profit from technical analysis. We recommend the following procedure when deciding to try technical analysis:

  • Try a free trial subscriptions with Investtech. Complete the competence program online and learn which indicators and signals have given the statistically best return.
  • Register for Investtechs daily e-mail newsletter. It is free and contains a market commentary and a recommended stock.
  • Read literature about technical analysis, for example Investtechs book.
  • Be curious and patient. Demand statistical explanations and also logical and psychological explanations for analyses and recommendations.
  • Think portfolio risk. Diversify your investments across at least five stocks, or even ten. Follow up weekly at least.
  • Remember that stock investments are fun! Bear to take your losses and do it fast. Enjoy your winnings and dont sell too soon.

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