Not yet
The signal is not confirmed.
posted by Jack @ 5:52 AM
The Blog of a Man who Plans to Retire at 37
Latest S&P 500 trading signal: Buy
Signal date: November 2th 2005S&P 500 opening value: 1202.76
Position: cash: 0$ S&P ETF: 9960$ (as of November 2th)
The plan
- What this blog is about?
- Seize this life-changing opportunity!
- FireCalc
- Target retirement date: September, 2012
- My 15k$ budget
- Frugal investing
- Asset allocation ยจ
Tuesday, October 25, 2005
2 Comments:
I believe technical analysis is not possible, or at least, not possible by amateurs.
If it was possible, then well-funded Walsteet firms would use this analysis to 'buy' before you are able to, driving the price up.
Why not just settle for market-average returns, as the Efficient Market Theory predicts, and focus your effort on other directions, such as reducing costs or increasing income?
Hello yaniverse,
First of all, I don't believe "strongly" in technical analysis, but to some extent, I believe it can provide a good hint on when to invest and when to sell. Suppose you have a security to buy or to sell, but you don't have to do it today. You used value investing to find a good company to invest in. Say for instance the company is "AllState", which has been battered following hurricanes. Would you have invested in AllState the day after we learned that Katrina flooded New Orleans streets? You would have lost 20% of you investment in a few days. Did Katrina modified the fundamentals of AllStates? I don't think so.
So if your decision to buy AllStates would have been to wait for the hurricanes to be behind us, after the market having sent AllStates down enough to take the profit loss into account, you would have been doing technical analysis. Technical analysis is just another tool to decide when to buy/sell, but I would not buy a security I don't believe in, fundamentally (which is why I trade the S&P500 and not penny stocks, for instance).
Relating to your argument "well-funded Wallstreet firms would use this analysis to buy before you are able to", I have to says two things.
First, they do. Technical analysis tells you before it is published in the papers that well-funded Wallstreet firms think the market should go up. You just jump in the train before it is too late (generally, when analysists increase ratings on a security, the price of this rating increase is already reflected in the price ahead of the rating increase).
Second, well-funded Wallstreet firms don't have the same edges that you average citizens have. They have undoubtely information edges you will never have. But you have also some edges: for instance, you are able to sell 100% of you stocks with not effect on the security sold. If Warren Buffet was to sell all his shares of Coca-Cola, for instance, the shares would go down dramatically before he would have been able to get rid of them. Thus, when someone like Buffet sells security, he is not doing that with the idea of buying Coca-Cola in three months, if the future seems to be more promising for Coca-Cola. He will either hold or sell, but will not be playing with the security. As a "citizen", you are better able to play the market than most big Wall-Street firms and fund managers.
Regards,
Jack.
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