Technical Analysis

Minyanville article on technical analysis. Our money flow analysis is an offshoot of this.

Investors Relying More on Technical Analysis, Charts. By Josh Lipton Jul 15, 2010 3:35 pm

{SynopsisTechnicians saw the 2008 bear market coming, but analysis doesn't comes with a money back guarantee.}

Technical analysis right now seems to be driving markets more than ever, the Wall Street Journal notes with analysts and investors taking bullish or bearish stances when indexes and stocks hit certain levels or show certain patterns. The increasing inclination of investors to zero in on price action rather than fundamentals, the Wall Street Journal emphasizes, is playing a role in the stock market’s increased volatility.

It’s a point John Hussman, president of Hussman Investment Trust, emphasizes in his latest commentary. “In decades of market analysis, I can't remember a time that I've heard many analysts quoting some support or resistance level as being 'critical' for the market,” Hussman wrote, adding, “The object of discussion has increasingly turned to the implications of this particular chart formation or that, as if some magic number or another absolves investors from having to think about the big picture.”

Why would investors now be so taken with technicals? S&P’s Sam Stovall chalks up the enthusiasm in part, he says, to the fact that technicians proved more accurate in their 2008 forecasts than their spreadsheet-wielding peers, who exclusively concentrated on the fundamentals, meaning economic data and earnings.

“People were so taken by surprise in 2008,” he says. “The technicians saw it. The fundamentalists didn’t. We ended up with a bear market of 57%.” ...When engineering his own investment strategy, Stovall says, he uses a four-pronged approach including historical performance, economic projections, earnings projections, and also looks to see what his in-house technicians have to tell him. "There is that old saying that fundamentals tell you ‘what’ but technicals tell you ‘when,’ ” he says....

Comment: Technical analysis or money flow analysis deals in probabilities. Not in guarantees. It is the same equivalent of being dealt a ten and jack at blackjack while the dealer shows a 16. You might still lose the hand but the probabilities are much lower than some other hand combinations. Technicals and money flows can give you those probability scenarios. It is not a can't miss method to profits. It is a tool that needs to be used with fundamental work and valuation analysis.

Link: Investors Relying More On Technical Analysis

*Long ETFs related to the S&P 500 in client and personal accounts.