Stock split impact on technical analysis

Discussion in 'Technical Analysis' started by Poirot, Aug 12, 2010.

  1. Poirot


    Hi all,

    Does stock split have any impact on technical analysis?

    For example: ABC stock has a support at 40$. After stock split (1:1), in the price chart, we will see a support at 20$. Technically, that is a support. But investors used to a support at 40$, not 20$. I wonder whether the investor's reaction at 20$ is the same as at old support of 40$.

    Sorry for my bad english. Thanks.
  2. This is an interesting question. Technically speaking it should not matter but markets are also depended on psychology. IMO during booming or bubble markets splits are used to turn old resistance into support. Nowadays are not popular especially in the $40 level because they are an indication that the company is printing paper. IMO during bear markets the psychology may work against so companies do not split, rather they do inverse splits because a high price gives the impression of strength.

    Good question though.
  3. No. Stock split has no technical significance.
  4. Poirot


    Do you mean new support/resistances have less psychological impact on investors? So, they do not work as we expect?
  5. I would consider two scenarios: with adjustment and without adjustment.

    With adjustment: The chart needs to make adjustment of old data that are before the split or dividend date to zero out the gap.

    Without adjustment: No adjustment on the chart, so we see a gap.

    It's too much hassle - that's how I feel. Now I trade only GC, SP, EUR, and 3x ETFs, so I never need to worry about the dividen/split gaps.