Technical Analysis Works
Technical analysis works 70% of the time, according to Jeff Gundlach chief investment officer of Los Angeles-based DoubleLine Capital. Few top investors will admit to using technical analysis but Jeff Gundlach a respected investor said that he relies on technical analysis under certain conditions.
So when will technical analysis works 70% of the time?
Here is the zinger, “It works when the market’s resistance and support levels are “in sync” with sentiment signals, said Jeff Gundlach in a conference call with investors at 4:15 pm on May 22. The topic of his talk was Double Line’s fixed-income closed-end funds, DBL and DSL. There were no slides accompanying his presentation.
“When those things marry together” Gundlach said, “technical analysis works 70% of the time,” claims Jeff Gundlach.
Jeff Gundlach claim that technical analysis works 70% of the time is based on a successful professional investment career spanning 35 years. Gundlach has outperformed the market and his rivals by about 75% to 80% of the time. Approximately, half of his investment decisions are based on technical analysis and the rest on fundamentals and understanding investor psychology and human nature.
Jeff Gundlach claim that technical analysis works 70% of the time when resistance and support levels are synchronized with settlement levels were also the primary topic in Jeff Gundlach’s previous webcast.
He said then that if the 30-year Treasury bond breaks through the 3.22% level, it would be a stronger signal of higher rates than if the 10-year yield rises above 3%. Also, for the 30-year yield to break the 3.22% level, it would have to close above that on two consecutive days. It closed above 3.22% on May 17 when it hit 3.25%, but the 30-year yield has not yet breached 3.22% on two consecutive closes.
The US T10Y yield has fallen back just a tad below 3% as I write this piece.
“Don’t get bearish on rates unless 3.22% is breached” Jeff Gundlach warned last month. Gundlach said that the long bond and technical analysis are what matters.
So if technical analysis works 70% of the time then it would be prudent for traders/investors to use charts with trend lines?
Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation.
The two trend lines that you will encounter are uptrend line which has a positive slope and is formed by connecting two or more low points and a downtrend line which is the inverse of the former.
Technical analysis works 70% when resistance and support levels are synchronized with sentiment signals.