Forum Archive Index - June 2002

["Brian & Fiona Brakenridge" <pohuenui.island@xtra.co.nz>]

Below was taken from Hemscott's weekly news letter. Thought it was an interesting comment.

I am coming to the realization that both camps are dominated by negative perceptions of the other. TAs consider FAs as boring old grey headed farts bent over stacks of company reports and financial calculators. FAs consider TAs to be Harry Potter clones working their wizardry over black boxes full of chicken entrails. I'm shutting out these two extreme views and looking at ways of utilising both sets of tools. 

"Men in dirty raincoats with large overdrafts' was how Jim Slater famously wrote off technical analysts. While we at Hemscott share Slater's bias towards fundamental investment measures like growth rates and price-earnings ratios, we also firmly believe that charts have a place in every investor's toolkit. Our flagship subscription service Hemscott Analyst makes a feature of combining fundamental and technical analysis, and others are now adopting this hybrid approach.It's curious that investors are so black and white about charts and fundamentals because there are times when one method plainly has the edge over the other - even Slater favours shares with positive relative strength, which is really a disguised bit of technical analysis. And we have found, using our hybrid approach, that our best investments have been those made when the charts confirm the fundamentals and vice versa.

With so many conflicting signals currently, there's never been a better time to keep a close eye on the charts. The economy's apparently on the up but investor sentiment is in the doldrums. The fundamentals are saying this is a buying opportunity, but the charts - which are no more than a graphical representation of shareholder psychology - are flashing red lights.

The head and shoulders pattern - a classic bearish indicator - on the S&P 500 is now unmistakeable and it doesn't look much different on the FTSE100. Couple that with a likely breach of the very long term bullish trend that's been in place now since the mid-1970s and it would be a brave investor that dismissed the message in the charts.

Bill Adlard, Hemscott's in-house technical analyst, has taken a detailed look at the outlook for the main indices in the US and over here in the wake of Footsie's fall below 5,000 for the first time since last October. You can read his full analysis by signing up for a free trial to Hemscott Analyst, our email share tips service."

One last quote from a fund manager in the US. This sums it up and is interesting because it is at polar extremes to the hype we saw two years ago before the burst when anyone who spoke of gloomy times ahead was shot down in flames by the rampant bulls. Here we have a bull feeling a little stroppy and no doubt there will be a herd of grizzlies out there ready to tear him down!

"So, with the exception of the economy, a lot of things look pretty lousy and consensus is pretty terrible. The psychology is horrible. These are the kinds of things one sees at market bottoms, not at market tops."

Cheers

Brian