Technical Analysis Sentiment Predicts Stock Returns

Technical Analysis as a Sentiment Barometer and the Cross-Section of Stock Returns

AuthorsWenjie Ding; Khelifa Mazouz; Owain ap Gwilym; Qingwei Wang

Paper linkhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=4296699

This strategy constructs 16 long-short stock portfolios sorted by firm characteristics and applies technical analysis (TA) sentiment signals daily. Investments are timed based on whether TA sentiment exceeds the 10-day moving average, capturing short-term momentum and mispricing.

TA sentiment reflects investor mood and delayed arbitrage effects. Stocks more sensitive to sentiment generate higher short-term returns, which revert later, allowing the strategy to exploit sentiment-driven market inefficiencies for profitable timing.