Expert: Steve Hach - 1/16/2010

Question
Hi Steve,

I've read that Technical Analysis generally gives one an edge as compared to fundamental analysis in predicting market moves and gives one more data akin to insider information. Have read also where Technical Analysis could have helped one get out,(by several weeks),of those stocks that dived during the recent economic crash.

Do you think this is generally true and what is your own opinion regarding Technical Analysis as applied to investing?

Thank you very much.

Mike E.

Answer
Mike,

Sorry for the delay in my response, I answered this one a few days ago and screwed up by not hitting "send" after my preview.

I do not feel that Technical analysis (TA) is like insider information.

I do not recall any information that TA provided an edge prior to the recent market crash--on the other hand, the TA guy here at my firm did successfully call the bottom on March 6, 2009.

I think that the most successful investors use both TA and fundamental analysis (FA).

In large part I think that TA works--to the degree it does--because so many people believe in it and are prepared to act on it.

When it really comes down to it, TA merely involves looking at the lines on stock history charts, identifying patterns, and making claims about what the line will do next--"ascending wedge," "head and shoulders," etc.

Often it seems akin to voodoo to me, not anything that can be proven empirically.

A good source for TA would be the people at Investor's Business Daily and the founder/editor/president William O'Neill.  Any of his books will give you a good basic knowledge of TA.

I also like the annotated charts which are sometimes available free here:  http://www.ritholtz.com/blog/

Best,

Steve