April 23, 2007
Why Technical Analysts Don’t Deserve To Be Taken Seriously
I was bothered by this story, which was widely read today: In Case You Missed It: Charts Show Bond Rally Is Over.
Bloomberg stories are cobbled together with a bunch of quotes and data and facts, but they’re not necessarily coherent. The author gets quotes from no less than six people: John Kosar, Louise Yamada, Ed Yardeni, James Grant, Lacy Hunt, and Walter Burke. The writer tried to contact Burton Malkiel, but he was traveling, thank god. The article also mentions Bill Gross, Peter Peterson, Paul Volcker, and Alan Greenspan.
Anyway, some guy named John Kosar is quoted/paraphrased:
The turning point was so obvious that even “a five-year- old who has a ruler and a pencil can draw a line under the lows and make a determination'’ that bond yields have bottomed and are poised to climb for many years to come.
Well, this [thirty]-five-year old just drew this line and I can’t determine that bond yields have bottomed, let alone “are poised to climb for many years to come.” What nonsense. It’s true that the trend has shifted in the bonds on the monthly time frame, but so what, that doesn’t mean they are “poised to climb for years to come.” No wonder “technical analysis” has such a bad name.
Two more precious lines that entertain or annoy (depending on your mood):
“Yamada in 2001 correctly predicted 10-year Treasury yields would range between 3.5 percent and 5.5 percent for several years….”
Hooey! Isn’t it more accurate and honest to say: “Yamada in 2001 happened to guess that 10-year Treasury yields would range between 3.5 percent and 5.5 percent for several years….”
“Greenspan reduced inflation below 4 percent.”
Poppycock! Isn’t it more accurate and honest to say that “inflation fell below 4% when Alan Greenspan happened to be Federal Reserve Chairman.”
There was one useful thing to take away from the article and here it is:
“Investors who bought Treasuries in 1981 reaped almost twice the returns as those who bet on the Standard & Poor’s 500 Index … The 13 1/4 percent bond due in 2014 that the government sold on May 15, 1984, returned an annualized 24 percent. The S&P 500 returned 13 percent, including dividends, during the same period.”
April 23rd, 2007 at 9:18 pm
You grow more erudite every day!
April 23rd, 2007 at 9:20 pm
drgood: It should be said that I rely on charts *exclusively* while day trading. ;-)
April 23rd, 2007 at 11:39 pm
i’d rather pick ‘em randomly…
April 24th, 2007 at 12:15 am
It was a good read this morning, better than the funnies.
April 24th, 2007 at 12:54 am
The bulk of the ‘news’ that comes from the wires follows this simple formula of looking what the market has done in earlier in the session (1 paragraph or the opening or closing line to the piece), a current theme that can help to explain the move (eg: x went up as growth expectations did y) and a paragraph or two of quotes from street analysts (usually one or two). Other people’s views and comments generally make up the bulk of the articles, with extra paragraphs available in the form of ‘however, John Doe from Loadsamoney Bank thinks differently…’.
Writers like Caroline Baum at Bloomberg thinks for herself, but the more junior writers are not clearly allowed to. This way, they can churn out stories like a baker bakes bread. Unfortunately, the poor writer who wrote this piece must have wanted to impress his masters, and thought ‘I can’t write more on the price action, and I am not in a position to write any in-depth analysis on the themes in the market, so how can I give my piece length?…ah, yes, quotes! And just like that, he hit the phone with no regard as to who was on the other end. Terrible.
April 24th, 2007 at 1:04 am
CM:
I contacted Bloomberg about your concerns and this is what they had to say - -
“Yeah well tell the Chairman he can say whatever he wants as long as he keeps sending the $1,500 USD per month to support us paying the junior writer schmuck to write the crap he reads.”
;) LOL
April 24th, 2007 at 1:21 am
People who disagree with technical analysis are the ones losing money in the markets.
April 24th, 2007 at 6:56 am
Steven, if you think CM is paying anything for Bloomberg, then you don’t know him.
CM, you quote him as saying to “draw a line under the lows.” Now even a five year old knows lows from highs. :-)
April 24th, 2007 at 7:01 am
dayo: Kosar was talking about bond prices; I happened to have the yield chart handy — just invert the chart in your mind. I “pay” for the Bloomberg in blood, sweat and tears (not cash). ;-)
April 24th, 2007 at 8:37 am
“The turning point was so obvious that even “a five-year- old who has a ruler and a pencil can draw a line under the lows and make a determination’’ that bond yields have bottomed and are poised to climb for many years to come.”
I agree. Only a 5yr old can do such a thing! I think the writer is correct in stating that!! That’s why 5yr olds are not employed as traders! And why the author of such a story is an author!
April 24th, 2007 at 9:59 am
Lauriston: Well, we don’t want to bash the reporter too hard, she’s just reporting what some guy said. But I agree that lines drawn “with 25 cent rulers” usually don’t mean a heck of a lot.
April 24th, 2007 at 7:41 pm
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