Technical Analysis

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Feb 9, 2010 6:55 pm

I have a client (engineer) who called yesterday and said that he wanted to move his entire portfolio to cash.  His reasoning:  the 10/80 EMAs are pointing toward sell, so it's time to sell. 

 
First, I'm not a chart guy.  I'm especially not a technical analysis guy.  I understand EMAs, but I'm not fully convinced that we should be using yesterdays data to predict tomorrow's results.  Case in point, yesterday he wanted to get out, today the DJIA's up 150 pts.  I'm much more of a buy good stuff, get a good asset allocation strategy going, and make sure nothing gets out of whack.   
 
Question - are EMAs useful with funds?  I look at the 10/80 chart on ITHAX (one of his funds) for the last 6 months and the time to sell was back in Nov.  The lines don't cross, which according to him is a sell signal, until right now.  How great a tool is it that tells me 3 months too late that I need to get out?
 
If I'm going to start becoming a chart guy, for conversational purposes only, is there something better to learn?  MACD? Bollinger Bands?  Slow Stochastic?  Defibrulation?
 
 
 
Feb 9, 2010 7:10 pm

Spiff - Read my post in "Clients"  under "Dumb clients".  That particular client was a technical analysis follower.

Feb 9, 2010 7:28 pm

Moraen.... This is what I meant by taking Technical Analysis to the extreme...too much to worry about..

 
It's like suntanning... Living in the midwest, we don't get enough sun because we have all 4 seasons... But taking a trip to florida and getting a tan is ok for the week you are down there, but you would never want to have the lizard skin from being in it 365 days out of the year when you live there...
Feb 9, 2010 10:26 pm

check out wishingwealth, http://www.successful-investment.com/newsletter-archive.php,
and decisionmoose.com.

These three sites have about 10 years of weekly market timing help.

I have a hard time with getting carried away with market timing, but these sites have tremendous research and have following their free advice has added a ton of value vs buy and hope.

My 2c
Dash



Feb 10, 2010 7:59 am

For fun, feed him this and see how he reacts. From the March issue of Kiplinger's

an October 2009 study by New Zealand’s Massey University found that of
more than 5,000 strategies that employ technical analysis, none
produced returns in the 49 countries where researchers tested the
strategies beyond what you’d expect by chance

Just kidding!

I've found that TA is like religion, you either believe or you don't and no amount of discussion will change your point of view. Chartists or the Church of the Flying Spaghetti Monster, not much difference

Feb 10, 2010 8:17 am

Next time he comes into the office with his technical predictions, throw some chicken bones on the ground and crouch over them as if you are reading them.  Then explain how they refute his TA.

Feb 10, 2010 8:20 am
josephus:

For fun, feed him this and see how he reacts. From the March issue of Kiplinger's

an October 2009 study by New Zealand’s Massey University found that of more than 5,000 strategies that employ technical analysis, none produced returns in the 49 countries where researchers tested the strategies beyond what you’d expect by chance

Just kidding!

I've found that TA is like religion, you either believe or you don't and no amount of discussion will change your point of view. Chartists or the Church of the Flying Spaghetti Monster, not much difference

Agree.. Don't believe in god but believe in TA
Feb 10, 2010 8:37 am
Wet_Blanket:

Next time he comes into the office with his technical predictions, throw some chicken bones on the ground and crouch over them as if you are reading them.  Then explain how they refute his TA.



Interesting you should say that.  An offshoot of technical analysis is actually "financial astrology".  What is more interesting is there was a paper done in 2001 (with cherry-picked data I'm sure), that showed financial astrology was more accurate than technical analysis.  I can't find it, but I'll do a search at the University tomorrow and see if I can pull it up.

Here is a nice piece of crap website though:

http://www.docstoc.com/docs/4707992/Market-Timing-Digest-Platform-for-Financial-Astrology-www-markettiming

Feb 10, 2010 8:42 am

I think in the first season of Wall Street Warriors, one of the "characters" goes to a Financial Astrologist.  He was just as accurate as a normal Astrologist.  Does Financial Astrologist base their predictions off of 5,000 year old star charts too?

 
Does anyone know anything about Statistical Physics?
Feb 10, 2010 9:41 am

I use a monkey and a dartboard

Feb 10, 2010 9:55 am

You throw a monkey at a dartboard?

Feb 10, 2010 9:55 am

I think he uses a monkey to throw darts at the dartboard

Feb 10, 2010 11:06 am

C'mon, Mo!  I would have expected you to know I was kidding....

Feb 10, 2010 11:07 am
B24:

C'mon, Mo!  I would have expected you to know I was kidding....



I did.  But other people might not have.

Feb 10, 2010 8:49 pm

If he thinks the market is going to tank, show him how he can make a fortune buying a boat-load DJX put options.



Dec10 is at $9.00

Dec11 is at $12.30



I like the 2011 options. For 12% of his portfolio you can limit his loss to 12% for the next 2 years. If the volume or price is not there, you can also do this trading options in his biggest holdings.



Either way, you are keeping a client and increasing your transaction business.

Feb 11, 2010 5:56 pm
Lawrence:

If he thinks the market is going to tank, show him how he can make a fortune buying a boat-load DJX put options.

Dec10 is at $9.00
Dec11 is at $12.30

I like the 2011 options. For 12% of his portfolio you can limit his loss to 12% for the next 2 years. If the volume or price is not there, you can also do this trading options in his biggest holdings.

Either way, you are keeping a client and increasing your transaction business.

 
Lawrence , Spiff is at Jones and can't do options even though he was tested on them when he got his Series 7.