Forum Archive Index - April 2004

["Woody deJong" <solarmax@optusnet.com.au>]

Snoopy
If you researched TA even half as much as I am now researching FA you
would be half as close to understanding TA. Obviously you see bars and I
see stars where that concerns. I fail to understand why you are so
negative in such a broad area.
         As for Put/Call ratio, Shorting Interest, etc, they are
decidingly Fundamental Indicators. They are not TA indicators that I
have never used, as there are very few TA indicators, Systems and
methods that I have not studied, used and kept or discarded. When you
decide to enjoy the pleasure of research in an alien environment as I
myself have then on this subject you may again earn my respect. If you
really want to see major support and resistance areas then look no
further than the Dow Jones index.

Woody

-----Original Message-----
From: sharechat-owner@sharechat.co.nz
[mailto:sharechat-owner@sharechat.co.nz] On Behalf Of
tennyson@caverock.net.nz
Sent: Tuesday, April 13, 2004 10:31 AM
To: sharechat@sharechat.co.nz
Subject: Re: [sharechat] Fundamentals Snoopy! and his Pups

> 
> 
> I have been a pure TA trader all my trading life,
>  up until as of late I have never even bothered with the
> 'So called 'Fundamentals. However the more I study the Fundamental
> indicators used by FA Traders the more I discover our similarities.  I
> am starting to believe that FA analysis is TA ( a rose by another name
> ) Here is a yearly PE/Ratio chart of the S&P500 group of stocks. It
> has an Open,High,Low Close. You look at it as a mathematical equation;
> I look at it as a geometrical equation.
>

OK, but what does the graphical representation of the PE Ratio of the 
S&P500 shares tell you, as a trader?

I note that there is a quote given when explaining the graph you post 
that

"The PE ratio does not work very well as a timing device"

So what would you, as a trader, hope to gain out of this P/E vs time 
graph you have presented?

> 
>You have the company reports on their weekly, monthly,
>yearly etc performance. These can also be represented graphically,
>with an open, high low close chart. You have the Beta Coefficient
>(another chart) The Shorting Interest (again) The Put/Call Ratio
>(also). Volume. Every Fundamental piece of information I have been
>able to obtain can be represented graphically. 
>

Yes, usually any set of numbers can be represented as some kind of 
graph.   I don't see that 'a set of numbers' vs 'a graph' is the
distinction 
between F/A vs T/A though.

I would class any information based on 'the market' as T/A whereas any 
information based on 'the company' is F/A.   With that definition I
would 
class neither the 'Shorting Interest' nor the 'Put/Call Ratio' nor the 
Volume as anything to do with F/A.    These are all T/A indicators,
albeit 
T/A indicators that you, Woody, may have chosen not to use up until 
now.   

Nevertheless there are other T/A people out there that use these 
indicators, and I'm not saying that this is either a good or a bad
thing.
Each to their own.

>
>Support/ Resistance
> lines that are used intensely by TA traders are also areas
> where FA Traders see value in buying a Share (Support) 
>
 
I think there is some truth in this observation.  However, there is a 
difference in the way an F/A person and a T/A person might behave if 
the 'support' line is broken.  The T/A person would more than likely
sell 
immediately claiming that what was support has now become resistance 
and would wait to buy in at a lower price.   The F/A person would more 
that likely hold as the fundamental reason for the investment had not 
changed.

Take the example of RBD over the last year for example.  There were 
suggestions that once the $1.20 level was breached the price would 
plunge to around 80 cents.  It went below $1.20 but never did get to 80 
cents.   RBD seemed to find a 'new'' support level at somewhere around 
$1.10.  So all those traders who waited for the share to drop to the 80c

support level missed out.   I have to ask where is value in a simple 
support resistance buy sell strategy that keeps you out of winning 
trades?

>
>and calculate a profit taking area (Resistance) 
>

I guess the problem here is what happens when the chart moves into 
uncharted territory.  If a high resistance level has not been
established 
*ever*, then what is a chartist to do?    How do they avoid being
flicked 
out of an uptrending share the moment it encounters the slightest price 
wobble, yet is still fundamentally very cheap?  WRI would be a good 
example here.

>
>If you buried your FA Bone in the backyard and
> dug up a TA bone instead would you still gnaw on it ? Would you
> recognize it as such? I am doing a 'Major Back flip ' here but I am
> now seeing that with today's technology and with the information
> available I now feel foolish not to use ALL forms of analysis to
> achieve my goals. So perhaps we can bury an FA and a TA bone
> and dig them up at will in any order.
> 


I wouldn't dismiss a strategy because it is T/A.    But I would dismiss
a 
strategy if it has not been shown to consistantly work, and not leave
you 
with a real risk of ruin.  From what I have been able to figure,
successful 
F/A strategies can be written down on paper.     By contrast successful 
T/A strategies seem to have to be rewritten for each situation, with 
different combinations of indicators for different shares and different 
time periods.    

There is certainly evidence out there that for individual shares using a

single simple trend indicator is insufficient.   Whether a test can be 
devised that shows that a more sophisticated T/A approach can work is 
something I would like to see.    However, in the absence of such 
published evidence, except from self styled investment gurus pushing 
their own black box software, I fail to see why I should commit a huge 
amount of time to T/A.    Particularly when there are F/A techniques out

there, like value investment,  that have been proven to work and have 
used the same rules that haven't changed (so don't have to be 
reinvented, unlike some T/A it seems)  for over sixty years.

As far as making a concession to the T/A advocates out there I am 
prepared to go this far.   There are situations when a share becomes 
obviously overvalued by any F/A indicator you would care to name.   
The 'dot com' boom contained several examples of this.  The price that 
some of these shares rose to could only be explained by sentiment.    
T/A measures market sentiment.  I guess you could argue that T/A might 
be a reasonable tool to measure the behaviour of dot-com shares during 
the boom.  Whether T/A could have got you out before the big bust 
happened is something I am dubious about though.

Perhaps T/A can be used to time entry into a share with high market 
liquidity.  However, when a share has low market liquidity, by using T/A

you run the risk of not buying a share while it is cheap and not
entering 
the share until any price run up is well underway.   Then when the 
market wobbles the T/A people are out.    That kind of thinking leads to

a 'buy high' 'sell low' strategy.   It is pretty hard to see how you
would 
make any money out of that.

SNOOPY


--
Message sent by Snoopy 
on Pegasus Mail version 4.02
----------------------------------
"Q: If you call a dog tail a leg, how many legs does a dog have?"
"A: Four.  Calling a tail a leg doesn't make it a leg."



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