Technical analysis performs analysis of security price fluctuations along time, in order to anticipate future behaviour. This involves the study of a number of indicators that can be categorized as follows:
- Investor Sentiment - Deals with investor psychology.
- Momentum - measures change in stock prices.
- Speculation - measures willingness to engage in risk.
- Monetary - measures the level and direction of interest rates.
On the one hand, these kinds of analyses have been the target of severe criticism since they disregard the financial health and performance of the underlying companies. But on the other hand, stock prices are target of demand rules of the market, and as more of the market is flooded with speculators, the less relevant the financial data is.
It is important to stress here the long-term and the short-term points of view of stock price fluctuations. At the short-term (daytrading), the fluctuation of prices can be explained largely by speculation activity. One major input to this activity is news. Sometimes, even unrelated events can trigger speculation movements that lead to unreasonably large raise or fall of a stock price. Examples abound.
Notably, stock crashes, that seem to happen periodically in history, are usually triggered by events that can hardly be understood as causes per se.
Regarding long-term prospects, stock prices show a stable increase over the decades, through a succession of peaks and crashes. After a crash, the stock prices usually recover to values close to the ones before the bull market periods that preceded the crash.