Why I Favor Technical Analysis

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  • on February 14th, 2011

I’m going to keep this short, because the comparison of technical analysis and fundamental is beyond a post…even though I tried once with this post.  The bottom line is the edge for researching fundamentals is not mine; so many people are closer to the fundie signal and my edge lies in interpreting what other might do with that fundie signal.  Keynes was mocking a little but described markets as follows in Chapter 12 of his famous book:

“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”

Am I not capable of making up my own mind about the fundamentals of a company or industry?  Generally, no.  I have a decent idea of what will sell and what won’t, but not enough to give me an edge over the thousands out there studying these trends for a living.  But I am able to apply universal human tendencies to patterns that I see developing, and use that edge to position myself in the direction of change.

A quick example that just hit.  The WSJ just published a story titled “Chipotle’s Asian Chain In Works May Be Names Shophouse-Filing”.  They even give credit to the analyst from who “discovered” the filing.  Will the stock go up on this news?  I have no idea, but I do know this “discovery” came 50 points ago for $CMG.  How about the following from the retail analyst at Hedgeye:

That stock was around $222 when I saw that tweet on StockTwits.  It sounded like fairly significant, I looked it up to see if it seemed like new news, and didn’t see it mentioned anywhere.  I didn’t trade it despite the info, as my days of trading off of the newswire expired with the Internet bubble.  But, this guy was WAY ahead of the venerable WSJ, and shared this piece of information for free and for all to share.  Bravo to his team for the scoop, and congrats to those who may have a chance to sell the news; if you hadn’t heard, the game has changed on how news gets disseminated.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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