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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (30411)	7/31/1998 1:19:00 PM
From: cardcounter	Read Replies (3) \| Respond to of 132070

I've recently started using technical analysis and am far from the best person to defend it. I realize it has shortcomings, but I wanted to throw out a few comments in defense of it. Oh yeah, I apologize about the spelling but its friday and I'm just biding my time till the Cowboy's scrimmage tonight.. >>Anyway, my problem with TA is that the practitioners, many of whom are personal friends, have trouble understanding the difference between random coincidence and causation. I've noticed this as well. In fact, at the most recent Market Technician's Association annual meeting, the Charles Dow award went to some guy that had found a correlation between major market panics and cycles of the moon...(i argued about the statistical insignificance of 4 data points and he basically dismissed me as a stupid college kid).. I don't confuse chart patterns, etc. with causation... but I do use them for trend analysis... The charts are for buy and sell signals... The fibonnaci numbers, oscillators, qantitative analysis, etc, etc, don't cause a stock to do anything... They are solely meant for signalling purposes. To the extent that others use TA, then perhaps a clearly discernable resitance level is reinforced by other market players who read it as such and trade accordingly. To go ahead and reconcile the arguement that some of you might be forming... Does TA, quantitative analysis lead to self destructive successes? ie, the january effect, etc. in other words, once a successful pattern is established, won't it be arbitraged away... Textbook says yes, but I argue that TA is so diverse and that there are so many approaches that pple use to screen their picks that even William O'Neils CANSLIM is still successful... On the quant side, the ersosion is a little worse since its less objective. I worked a bit with a quant jock from Santander, and the average life span of a successful screen was 2-3 yrs before it became useless.. >>that all the fundamental information is known about an issue and, therefore, trying to learn more about what is happening is a futile exercise. TA's believe in relatively efficient markets.. .obviously, not all information is known.. however, I think that in order to make money as a fundamentalist, you have to really be smarter (ie know more) than everyone else on the stocks you trade. That simply isn't possible. As soon as information becomes readily known, it is quickly, not always smoothly, assimilated into the pricing structure >>The really sad thing is that most Wall Street fundamental analysts buy into this scenario. I seriously doubt that TA's can negatively influence their fundamental bretheren. Fundamentals are the way everyone learns finance in college. It should be no surprise that analysts' earnings estimates are always so close.. They all approach the security analysis the same way. If everyone views the securities in the same fashion and they all seek out as much information as possible (profit motivation).. then it is little wonder that they have a hard time outperforming the market. TA provides for a fresh perspective. Bill O'Neil is an example of someone who has done quite profitably using technical analysis. >But the key to my opinion of TA is that no outstanding portfolio manager is a technical analyst. Some are momentum geeks, but, at least on the surface, they tend to be earnings momentum geeks. Look at William O'Neil.... In reading, Schwartz's (sp?) "Market Wizards", most of these guys used technical analysis in conjuction with fundamental analysis. I don't think you'll find a super successful TA purist, but I find the combination to be helpful.. >>You have to ask the question: if I had a mechanical system that helped me beat the market, why would I sell the fruits of that system for $300 a year when I could make millions trading it? that's a valid question... but I think you've made argument I would use here in your defense of fundamental analysis.... TA isn't a rigid science... most TA programs are very flexible for you to adjust your approach in evaluating securities... therefore, if someone sells you a good platform or approach that is profitable, they know they aren't giving away a potential money coining machine (although they will try to convince that they are)... Different technical approaches work in different environments.. the program they sell you may have had past successes (who knows, maybe they data mined to come up with a workable method) but it is a matter of time before this success is arbed away.. most likely as a result of others trying to capitalize on it...so why not make money on it... its really no different from all the other fundamental newsletters that pple subscribe to. Why would Gary Shilling, name your fundamental guru here, Marty Schwartz (ex-guru).. etc, be giving you the inside scoop on the world markets rather than just profitably trade on it?.. As far as brokerage houses' resident TA pressuring pple to buy stocks... I'm guessin you're referring to prudential's Ralphie Acampora... hey, its all showbiz and he's getting the publicity.. remember he's an analyst just like the other guys, you don't get rewarded for being right...just for makeing the top seats on Inst. Investor analysts pollls... clarification: what is MPT?? btw, Where can I find more info (ie a listing) on the entire universe on OTC:BB stocks? I like to gamble.

To: Knighty Tin who wrote (30411)	7/31/1998 4:16:00 PM
From: Merritt	Read Replies (1) \| Respond to of 132070

Mike: I use TA to help me get a sense of the price behavior of a stock. The indicators are usually structured so that they give a visual echo of what's taken place and the market's sentiment, and it's degree of intensity. Moving averages have become such a widely used tool, that they're probably something of a self-fulfilling indicator when they cross. Fibonacci retracements, and Gann projections have provided me with areas of probability...not certainty, probability. I'm comfortable with using TA in conjunction with fundamental analysis, and feel that the use of each is enhanced by the other. Another opinion, anyway. Best regards, Merritt