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NYSE Paper on Technical Analysis:

Technical Analysis and Liquidity Provision

ABSTRACT:

The apparent conflict between the level of resources dedicated to technical analysis by practitioners and academic theories of market efficiency is a long-standing puzzle. We offer an alternative explanation for the value of technical analysis that is consistent with market efficiency - specifically, that it reveals information about limit order book liquidity. We find evidence consistent with the hypotheses that support and resistance levels coincide with peaks in depth on the book and that moving average forecasts reveal information about the relative position of depth on the limit order book. These results help to reconcile the widespread use of technical analysis with the traditional academic wisdom, and provide a practical method for estimating the level of liquidity on the book.

http://www.nyse.com/pdfs/2002-04.pdf