Technical analysis is a STOCK MARKET prediction method based on the analysis of changes in a stock’s price and volume of trading. Technical stock analysts (known as technicians or “elves” on Louis Rukeyser’s Wall Street Week television show) construct a variety of charts plotting stock-price changes. Based on these charts, technicians predict future price movement. Technicians differ from other stock-market analysts in that they do not use changes in the fundamentals of a stock in making their predictions. Most investors and INVESTMENT analysts study a company’s fundamentals: its PROFITs, sales, market share, PRODUCTs, RESEARCH AND DEVELOPMENT, and MANAGEMENT. If a company’s fundamentals are perceived as positive, it is likely the company will grow and increase its profits, and thus its stock price will increase. In technical analysis, however, a technician may chart a stock’s 50-day moving average and purchase shares whenever the stock’s price moves higher than the average, regardless of any change in fundamental conditions affecting the company. Richard Schalbacker, author of Technical Analysis and Stock Market Profits, is considered the father of modern technical analysis. Schalbacker and other technicians use a language of their own. In addition to moving averages (50-, 100-, or 200-day average of the stock’s closing price), technicians discuss support and resistance levels, momentum investing stochastic, Bollinger bands, Dow theory, head-andshoulders, and plunging neckline, among other special terms. Support and resistance levels are lows (support) and highs (resistance) in a stock’s price. Technicians watch closely as a stock’s price approaches a new low. If the price goes below the lowest price traded in the last year, this is a negative signal, and technical analysts will often sell the stock. If the stock trades above its recent high, it has broken a resistance level. This is considered a positive sign and is an indication to buy the stock. Momentum investing is a variation of technical analysis in which investors buy and sell stocks based on whether the stock’s price is increasing or decreasing in relation to the volume of shares being traded. Momentum investing was a popular strategy among day traders in the late 1990s. Stochastic is a calculation comparing the current price of a stock with its trading range in the recent past. Stochastic is used to predict reversals in a stock’s price. Bollinger bands are lines plotted at standard deviation levels (variations from the average) above and below a stock’s moving average. Movement of a stock’s price out of the bands signals a “break-out” of the stock and either a buy or sell recommendation. Dow theory refers to the ideas of Charles Dow (of the DOW JONES AVERAGES), who held that the overall stock market would not change course unless the Dow Jones Transportation and Industrial Indexes were moving in the same direction. Head-and-shoulder and plunging neckline are descriptions of the pattern of movement of stock prices, usually using the Dow Jones Industrial Average. A head-andshoulder pattern would indicate the market has peaked and is on the decline. If the average were to fall below the recent lowest point, this would be a plunging neckline and, if accompanied by a high volume of trading, would forecast a significant decline. There are many other technical-analysis descriptions of stock-market movements. A number of websites provide examples of technical-analysis interpretation. For many years, technical analysis was compared to the psychological interpretation of inkblots. Traditional, fundamental stock-market analysts rarely admit to using technical analysis but quietly check technical signals when making their recommendations and investment decisions.