SajjadAhmad wrote:
One method of predicting the future value of a particular company's stock is to attempt to correlate the pattern of its recent performance with the past performance of other companies, even companies in different industries, whose subsequent stock performance is known. This technique, known as "technical analysis," provides a readily available basis for predicting the future value of a company's stock without special knowledge of that company or company's industry.
Which of the following, if true, would most strengthen the grounds on which to believe predictions made about the future stock price of a particular company according to technical analysis, as described above?A. For a prediction about a company's stock price to be useful, it must be more accurate or accurate more in advance than the predictions of the rest of the potential buyers and sellers of that company's stock.
B. Getting "inside" information about a particular company about what will influence that company's future stock price is difficult and often illegal.
C. Stock analysts cover a range of companies or even single industries, so they can focus their attention more effectively by using predictive methods that will be applicable across industries and companies.
D. There is a wealth of historical stock performance data which can be analyzed and compared to a particular stock's recent performance.
E. At any given time, the near-term performance of a particular company's stock depends not on industry-specific factors but on trends of buyers' and sellers' behavior that can be inferred from the near past.
Source: GMAT Free (15)
Official Explanation
Reading the question: the prompt doesn't present much argument but the question stem itself contains an opinion. It asks, what gives us grounds to trust technical analysis? There's not much for us to grab onto. The first sentence discusses "past performance of companies in other industries." And the last sentence goes farther somewhat and points out that we lack knowledge of the company's industry. So, technical analysis is good if 1) industry knowledge doesn't matter and 2) performance of companies in other industries is useful. It's kind of an "anti-industry method," to put it crudely; not investing based on industry knowledge. We look for so called "anti-industry" answer choices as our filter.
Applying the filter: (A) and (B) are neutral on the industry question. (C) is pro-industry, so it's the opposite of our filter - it's a weakener - so (C) is out. (D) seems required; how can we use this method without data? But it's industry-neutral, so it doesn't pass the filter. Moreover, a "wealth of data" may not be required, as long as we have sufficient data. Maybe just one good match for a particular stock is all that's needed, or something less than a complete "wealth." Choice (E) is anti-industry, so it passes the filter.
Logical proof: if we negate (E), that means we need industry knowledge and technical analysis will not work.
The correct answer is (E).