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February 26, 2005
Technical Analysts on a Downwave
The world's biggest financial services firm last week dismissed its entire stock market technical analysis team, including longtime analyst Louise Yamada, group leader who had been with the bank for nearly a quarter of a century.
Citigroup stated that the firing of Yamada and her team is part of an effort to control expenses, and the company is planning to eliminate up to 1,000 jobs from its global corporate and investment banking division:
Citigroup Eliminates Stock Technical Analysis Group
Naturally this released yet another barage of the customary anti-technical analysis invective which seems to emerge at every opportunity:
Technical analysis--you're fired! Is there any value to this controversial stock picking method?
I'm sure TA techniques could be used to spot just such denigrating opportunities!
However, I think it important to highlight the fact that Citigroup never claimed that TA doesn't work. The action simply implies that their customers just aren't buying the analysis that the company is producing. Instead they choose to focus their remaining analytical resources on fundamental analysis. Let's face it, with its roots firmly planted in facts and figures - the average investor finds this much easier to comprehend.
But for a trader, whilst the analysis of fundamentals plays a part and should never be ignored, it's importance for short term trading, day trading, swing trading, etc. is much less pronounced.
For example, we know that the markets can move dramatically at the time of fundamental announcements. Depending upon individual trading style, this will tell us either to keep out of the markets altogether at these times, or be prepared to act quickly upon specific signals. The news release of fundamental announcements are a time for skilled traders to make huge gains when positions are correctly managed.
So that's fine - people have voted with their feet and market forces have done their work - nothing changes - which is why TA is such a useful trading tool!
Posted by Tony at February 26, 2005 08:04 PM