Monday, March 13, 2006

Phoney Baloney Fibony (Fibonacci)

Technical Analysis. Ever heard of it? If you haven't, maybe you should steer clear of this posting, in the hopes that it doesn't inadvertently infect you.

If you've never heard of technical analysis, it is a (purported) system simply by looking at the price history of a stock, and by analyzing that alone, of being able to tell where it's going to go in the near future. Calling it a "voodoo science" complements it, in my opinion, because then the word "science" would be right beside it.

Might as well just get a child out to draw a bunch of intersecting lines on the stock chart and make a prediction than use Fibonacci lines, Elliott Wave theory, and all the other gibberish nonsense used by those in this witchcraft field. Even the Wikipedia entry for it says that "Technical analysis is viewed by many of its practitioners as more art than science." Art! Art just like a child's' scribblings are "art".

Here's a recent prediction by a technical analyst with a national audience, relating to a security then priced by the market in the $69-$72 range for about two weeks ... get ready ... here it is ....
The share price has broken below the 10 and 20-day MA's as is it retreats from an overbought condition. The daily MACD is issuing a sell signal thus consolidation of its recent gains may continue until the share price reaches the oversold lower Bollinger band at about $63, where it would offer a potential buying opportunity. It appears that the stock is in a corrective fourth wave of a five wave Elliot Wave advance. Once the correction is over it appears the stock's technical target extends to $97, attainable over the next year.
So, I'll try put that in English for you ... it appears to be priced too high at $69-$72 currently - if it drops to $63, buy it, because it looks like it's going to $97 within the next year.

Huh? Sell at the current price, in the hopes it drops a few bucks, because it's going up even more?

This kind of gibberish is all too frequent with this "technical analysis", unfortunately. I can't believe that people pay money to follow it, or even do anything more with this "analysis" than line their bird cage.

Stick to "fundamental analysis", you know, things like earnings, earnings growth rates, cash flow and their growth rates, revenue and it's growth rate, and the price of the stock (as measured by the PE ratio, for instance). You'll do a lot better in your investing.


The Confused Capitalist


Anonymous said...

If you are confused try reading this article about the Fibonacci Retracements from Ewave Analytics.

Jay Walker said...

I'm not confused about this - I've never seen a technical analysis that doesn't equivocate in the extreme - if it works so well, then why all the maybes, mights, coulds etc.

Bunch of nonsense.