Technical Analysis ...

[Bargain Hunter]

For Gold and Silver there are other fundamentals like industrial supply and demand, costs of production, forecasts of supply from future mining expansion or contraction. monetary inflation, etc FYI I have invested in gold and silver and made a profit without considering the technical/price information whatsoever.

Even currencies have fundamentals like interest rates for government and high grade bonds in that country, inflation rates, GDP growth, current account deficits or surplus, trade deficit or surplus, central bank pegging/intervention, etc.

 

[wrcmad]

For Gold and Silver there are other fundamentals like industrial supply and demand, costs of production, forecasts of supply from future mining expansion or contraction. monetary inflation, etc FYI I have invested in gold and silver and made a profit without considering the technical/price information whatsoever.

Even currencies have fundamentals like interest rates for government and high grade bonds in that country, inflation rates, GDP growth, current account deficits or surplus, trade deficit or surplus, central bank pegging/intervention, etc.

Exactly my point.
Fundamentals like industrial supply and demand.... data provided by whom? Credible sources such as Gata?
Costs of production.... still can't be agreed on within about 50%.
Forecast supply? Forecast?? As in... total guess work? :lol:
Inflation!!?? A number denounced by most here as total BS and fabricated by the gubermint.

As for currencies... inflation rates, GDP growth, current account and trade numbers, central bank numbers (!?).... all gubmint numbers that would be rebuked here as total BS and fabricated.
High grade bonds!!??? Given the forum you are part of, and the discussion regarding government money-printing, I am interested to know what you class as high-grade bonds?

It is an insult to technical analysts to even call that presumptuous, postulation voodoo crap "analysis". Please refrain from even referring to it as analysis.
T/A uses FACTS - price data and market participant dynamics.

 

[Bargain Hunter]

All statistics admittedly are open to interpretation so you have to look at multiple sources and make a considered judgement. For example in the U.S. if you don't believe official unemployment or inflation numbers you can look at shadow stats. Most major data points will have a multitude of analysts, economists and commentators providing analysis or offering an alternative set of numbers. Its up to he investor to make a considered judgement after analyzing a wide variety of data. How do you think billionaires like Jim Rogers invest in commodities? By looking at technical charts :lol:

By high grade bonds I meant corporate bonds with a low risk of default e.g. bonds issued by Apple or McDonalds, etc High grade doesn't mean its a good investment or will provide an attractive inflation adjusted returns. It just means default risk is low.

The problem with technical analysis is that the majority of market participants can sometimes be wrong about the value of an asset and the price will the swing massively the other way once they realise that. In addition price doesn't even necessarily represent people opinion of value. People might sell a position because of margin calls, fund redemption (for institutions) or because they need the money to renovate their house (retail investors). People buy and sell for all sorts of reasons which have nothing to do with their opinion of the value of an asset. This will then manifest itself in price which can at times be completely irrational thus allowing the fundamental analyst to profit from the price to value discrepancy.

I agree with what Jim Rogers said "I've never met a rich technician".

 

[scrooged]

Diversify. Both sides can't be wrong.

Little bit a TA

Little bit a FA

Little bit a MONAY

simples.

 

[scrooged]

Doh!, almost forgot Monica.

 

[BuggedOut]

Technical Analysis, Fundmentals and Contrarian Positioning. The 3 pillars of market prediction.

I dodged the GFC by getting out of the market and I did it purely from TA at the time as my understanding of fundamentals was poor back then. I didn't short the market so didn't make much money, but by dodging the drop I saved a bunch.

Discredit TA at your own peril. It's one of things that if enough people follow it and believe in it and ACT on it then it becomes self fulfilling anyway. Think about it....

 

[wrcmad]

How do you think billionaires like Jim Rogers invest in commodities? By looking at technical charts :lol:

No. Investors are not traders.
"Investors" rarely look at charts, because they don't understand them... and so choose to call themselves "investors", mistakenly assuming this title gives them a license to sledge T/A and it's methods, even though they understand nothing about it. They especially call themselves investors when a position moves against them and, unwilling to sell for a loss, are stuck in said position for an indefinite amount of time, waiting for the position to recover.
Investors usually have a very different time-frame to T/A traders too. However, like myself, many participate in both longer-term investing and shorter-term trading.
The only exception would seem to be Mike Baloney, who somehow manages to f*&k up both fundamental and technical analysis with uncanny regularity.

The problem with technical analysis is that the majority of market participants can sometimes be wrong about the value of an asset and the price will the swing massively the other way once they realise that.

True. It is these price swings that T/A's try to capitalise on.

In addition price doesn't even necessarily represent people opinion of value.

Strongly disagree.
Price is determined by all participants and non-participants in the market.
For whatever reason is behind participants decision, the only true indicator of the supply-demand balance/dynamic is agreed price, which defines value.
If you don't believe this, then I am arguing with an irrational person.

I agree with what Jim Rogers said "I've never met a rich technician".

I can tell by your opinion of T/A.
I have.
20 years ago I sat next to my mentor and watched him bag $300K on one trade. By the end of the day, he had donated it all to charity because it happened yesterday, and last week, and the week before that....

 

[trew]

However, like myself, many participate in both longer-term investing and shorter-term trading.

Serious question - not trying to take the piss


Do you make your long term investments based just on TA, or fundamentals, or both ?

 

[wrcmad]

However, like myself, many participate in both longer-term investing and shorter-term trading.

Serious question - not trying to take the piss


Do you make your long term investments based just on TA, or fundamentals, or both ?

A bit of both.
Usually my longer term holdings are blue-chips, or at least part of the top 200. Occasionally a few penny stocks for shits'n'giggles.
I tend to start looking at the charts of core holdings when news warrants it. For example, I exited BHP at around $40 based on a chart trigger, but only after the fundamentals were pointing to a slump in China's iron ore demand.
When buying, I tend to scan the charts of sectors to see which sectors looks promising, then start looking at both fundamentals and technical of good companies within those sectors.

Fundamentals will tell you what price "should be doing" (assuming the news is accurate or timely).
Technicals tell you what the price "is doing" and what market participants are doing.
It is only what price "is doing" that matters in trading. Opinions of what value "should be" mean nothing to your bank account.

 

[southerncross]

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.
Most scoffed that it was not going to happen - over the next 18 months those same people then came and told me they wished they'd heeded the warning.
Some of those were due to retire in the following couple of years, and it cost them a few more years of working to make up the shortfall in their super.
As for me, made shyteloads and laughed all the way to the bank shorting.

You must be a very rare breed then M8 as 99.8% totally missed it. But I note that you were 4 mths early, so were you right or wrong at that point in time ?

4 months is a long time in the trading market so a decision based on your TA at that point in time could of cost or made a large amount of money for people relying upon you for
analysis, rather you then me making that call in all honesty.

I must admit I don't get all the hoodoo voodoo charting wormy candle crossing linesy thingy stuff, but there must be something to it.
A question though, if it is so good, why are people not posting their observations from private Islands or space outpost's ?

And if you made shytloads during the GFC with TA, why are you still here posting on SS and not off on your own Island?

 

[wrcmad]

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.
Most scoffed that it was not going to happen - over the next 18 months those same people then came and told me they wished they'd heeded the warning.
Some of those were due to retire in the following couple of years, and it cost them a few more years of working to make up the shortfall in their super.
As for me, made shyteloads and laughed all the way to the bank shorting.

You must be a very rare breed then M8 as 99.8% totally missed it. But I note that you were 4 mths early, so were you right or wrong at that point in time ?

4 months is a long time in the trading market so a decision based on your TA at that point in time could of cost or made a large amount of money for people relying upon you for
analysis, rather you then me making that call in all honesty.

Not rare. A lot of traders saw it coming.
I sold and moved to cash just above 6000. The market topped out about another 500 points higher before shtf.
It's funny How many love to point the finger and say "see.... you were wrong... you missed the top! That must be proof that T/A doesn't work!"
Ridiculous given what happened to the blind majority. If selling 4 months early was a mistake, then most here have had a lifetime of FUBAR investment decisions.
Besides, as I have said numerous times before, T/A isn't a predicting tool, and doesn't assume to be one.
No one ever picks the absolute top or bottom with certainty or regularity.

A question though, if it is so good, why are people not posting their observations from private Islands or space outpost's ?

And if you made shytloads during the GFC with TA, why are you still here posting on SS and not off on your own Island?

Ahh, the old fallback line of "if it were that good, you'd be a gazillionaire!". C'mon. Seriously? Even Packer didn't post from his private island.
If that argument was valid, then all stackers currently look like right turtle-wits given the performance of their strategy for the last few years.
I live in the best part of Oz... not far from Byron Bay, by conscious, affordable choice. Life is good. And I quit a six-figure salary, moved here in 2008, and have never received a cent of govt hand outs. That was no accident.

 

[aleks]

Why is it billionaire status is the sole measuring stick of success?

The people on said list, half of which I have never heard of have probably made alot of their money from compound compound interest from managing other peoples money. You don't need to be making 100%+ returns year after year to become a billionaire. If you can beat a market index by a small margin you will attract investor capital and can charge management fees and take a cut from profits and reinvest it. This is huge leverage with no downside, what matters is if your investment strategy or trading style can scale.

A technical day trader exploiting a market inenficiency/pattern/squiglylinevoodoo or trading price in gold or the oil futures market that is profitable year after year can't scale to managing 100s of millions of dollars because they only take a few ticks out of market. Yet there are people that do this, if you didn't know this is what alot of PROPRIETARY TRADING FIRMS do and make a lot of money although not billions but still a shit load of money.

But as Bargain Hunter sounds like he is butt hurt and is posting purely for the sake of argument not because he is open to changing his position he will probably fail to acknowledge such firms exist

 

[Bargain Hunter]

I am far from but-hurt. I just find technicians to be an amusing breed. I will stick to my fundamentals and you guys stick to your squiggly line hocus pocus. No hard feelings.

 

[wrcmad]

I am far from but-hurt. I just find technicians to be an amusing breed. I will stick to my fundamentals and you guys stick to your squiggly line hocus pocus. No hard feelings.

No hard feelings here.... I've heard it all before.
Cheers.

 

[Topherclaus]

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.

How do you see us sitting now then; stable, rocky, or imminent collapse? I wouldn't mind a hearty chuckle to the bank to pick up some fresh moolah.

 

[wrcmad]

TA really nailed the GFC right ?

Yep.
I picked it, but was 4 months early.
Gave a presentation at work in May '07 advising moving super to cash as T/A was indicating the All Ords was due to halve from 6000 to 3000.

How do you see us sitting now then; stable, rocky, or imminent collapse? I wouldn't mind a hearty chuckle to the bank to pick up some fresh moolah.

I'll go with the non-committal rocky for now.
For a more definitive answer, apparently better to ask the fundamentalists.
Bargain Hunter?

 

[Bargain Hunter]

As a fundamentalist I do not claim to have any predictive ability about what the market will do in the future. That being said however I feel the All Ordinaries as a whole is somewhere between fair value and modest (no more than 10% over) overvaluation. If you look at the graph and chart in the following link it allows you to compare many of the worlds major stock markets based on valuation indicators: http://www.starcapital.de/research/stockmarketvaluation

Australia's currently CAPE (cyclically adjusted p.e. ratio) of 14.8 is somewhere around the longer term average (of course depends on your start and finish dates) http://www.macrobusiness.com.au/2011/07/chart-of-the-day-pe-or-not-pe/
Meanwhile the price to book ratio of around 1.8 is a little bit expensive based on historical averages.

Note these are long-term valuation indicators which are good at broadly predicting market returns i.e. low, somewhere around average or high over the next twenty years. Based on the long term indicators I would say that in Australia equity returns over the next twenty years are likely to be around average to mildly below average over the next twenty years. Therefore if I had to predict what the All Ordinaries accumulation index will return over the next twenty years I would say 8-10% per annum pre-tax (i.e. including franking credits) would be an educated guess. However if we have a hyper-inflationary scenario in the next twenty years then the nominal return would be higher and the real return would be substantially lower as high inflation is bad for business overall. I would say if hyperinflation unfolded in real terms your after tax return would likely be somewhat negative (not a total wipe-out like cash but a moderate loss overall).

There is actually some interesting info in here about long-term returns and valuation provided by the technical analysis association of all places!
http://www.ataa.com.au/file/PR_Vagg_A_Long_Term_Model_for_Aust_Stock_Market_Dec10.pdf

 

[wrcmad]

As a fundamentalist I do not claim to have any predictive ability about what the market will do in the future.

As a technical analyst, neither do I.

Based on the long term indicators I would say that in Australia equity returns over the next twenty years are likely to be around average to mildly below average over the next twenty years.

Well, that was utterly illuminating. I am stupefied by the wisdom of that analysis.
After reopening a 3-year old thread to come at T/A's like a bull at a gate, calling T/A laughable, likening it to voodoo, tea leaves and astrology, then promoting the virtues of FA by ingeniously listing well publicised economic data that may be cleverly used in a more realistic fundamental analysis, the best you can offer is someone else's vague analysis that:

".... the average of the next 20 years should be about the same as the average of the last 20 years..."

Seriously!!!???? FMD! :lol: :lol:

I can't wait to hear how you formulate a fundamental value of silver - that would be truly ingenious, because after posing the question plenty of times here, to this day still no-one has been able to provide me with one.

 

[Bargain Hunter]

Wrcmad numberous academic studies show that over 10-20 year periods (i.e. the long term) that starting valuation is the best predictor of what the return will be over that period. Looking at long term metrics like the CAPE, Tobins Q and the price book ratio, etc have far more predictive ability than factors like interest rates or GDP growth. When the market has long term valuation metrics that are well above long term averages the returns going forward will be poor, when valuations are well below average prospective twenty year returns will be above average.

If you look at work done by Robert Schiller the economist and author, and also the fund manager/asset consultant GMO which is run by Jeremy Grantham amongst many others you will see the evidence and logic of what I am talking about.

While my prediction appears to lack insight and boldness the fact is that the ASX is not undervalued nor is it parricularly overvalued (maybe slightly so). Therefore one would expect future long term returns to be somewhere around the historical average (as a best guess).

In Australia in 2005, 2006 and 2007 these long term indicators would have told you stocks were overvalued and future long term returns would be poor and in 2009 they would have told you stocks were undervalued. At the moment they give a relatively neutral outlook. None of these fundamentak indicators are a short-term timing device. In the U.S. market the whole 1998 - 2007 period the indicators wouod have told you stay away from U.S. stocks. Meanwhile they were neutral in 2008, bullish in 2009 and neautral in 2010 and 2011.

 

[trew]

You're starting to sound like an advertisement for the Efficient Market Hypothesis and Modern Portfolio Theory.

If fundamental analysis is voodoo how come practitioners like Warren Buffett, Benjamin Graham, Peter Lynch....

They were all stock pickers. Bottom up fundamentalists.

The Intelligent Investor doesn't talk about the market being fair valued or over/under valued.
It talks about 'Mr Market', a manic depressive who should be ignored or taken advantage of, as appropriate.