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midastouch017   Wednesday, 02/15/06 10:45:43 AM
Re: yos post# 13
Post # of 47 
Welcome to the club,

btw, an interesting article:

>>Anybody who has learned technical analysis has seen the charts of some stock or other, usually by projector (and the more the market rises, the more projectors there seem to be). The charts are gay and dotted with marks, over which the infra-pen zips about, indicating a point at which the analysis shows you should have sold Google at $445. The smiling lecturer will say, "Imagine how much you would have made if you'd sold at $445." To remind you, Google is now at $360 and at $120, they didn't think they should float it, and approximately from $160, chartists have said it would be technically wise to go short on the stock.<<

The Tel Aviv Tarot

15.2.06 | 16:48 By Alony Madar

The Tel Aviv Stock Exchange has strong support at 800 points!!

Every time I hear something like that, I start to itch. What does the market have at 800 that it doesn't have at 810, or 765?

I assume that aficionados of technical analysis, accompanied by brightly colored charts and waves that even Gal Friedman wouldn't know how to handle, are confident that it works. Partly because of the simple fact that always, but always, it can prove that you should have sold yesterday. Which is something like knowing the lottery numbers the day after.

Anybody who has learned technical analysis has seen the charts of some stock or other, usually by projector (and the more the market rises, the more projectors there seem to be). The charts are gay and dotted with marks, over which the infra-pen zips about, indicating a point at which the analysis shows you should have sold Google at $445. The smiling lecturer will say, "Imagine how much you would have made if you'd sold at $445." To remind you, Google is now at $360 and at $120, they didn't think they should float it, and approximately from $160, chartists have said it would be technically wise to go short on the stock.

But the point isn't Google. It's blind reliance on numbers drawn from the scribblings of chartists, weird and wild numbers that some believe are the spot at which the market will stop when it's dropping (support levels) or rising (resistance levels). Any breakthrough of the figure will result in another figure, and so on for eternity.

The words "technical analysis" are meant to indicate that a method, or examination, are being used here. The phrase is meant to extract the field from the realm of mysticism into an accurate, perhaps even scientific, dominion, even though it has never been empirically proved that using these waves prevents drowning.

A short-cut through the shoals

Technical analysis, or charting, has many admirers, for reasons of convenience. It is very convenient to assume that there is a method that can predict market fluctuations.

Method? Analysis? A whole discipline, even.

The capital market engages in money, the most desired product in the world, and here is a method that can help us investors generate money. Not just any method, but one sporting big names, formulas and graphs, all in live color.

From the time the world was created, humankind has sought magical solutions and slavishly followed the strangest of ideas. Some wanted to change lead into gold. Others chased after the fountain of youth and novice physicists have sought through the ages for a perpetual mobility machine.

In my opinion, technical analysis, or any other claimed method to beat the market, deserves a place of honor on that list.

Anybody searching for the absurd in charting can find it in analysis of a derivative. Believe it or not, I have seen people who see a certain price of an option on the TA-25 index (a Maof option) as a support level, meaning, as though it were severed from the underlying asset. Others technically analyze currency exchange rates in Israel and relate importance to this or that point, without considering the domestic and international forces influencing the dollar-shekel rate. You can read these analyses on the websites every day: "The dollar has a support level at NIS 4.68 and a resistance level at NIS 4.72" and so on. The numbers change but paper suffers everything.

With hindsight...

The temptation in the method derives from its magnificent ability to analyze the past. It always works in retrospect. The accuracy of the analysis of the past leads people who learn the method to assume the same chart will predict the future. You know how the prophecy works out.

The truth must be told: technical analysis has many supporters. I believe it is the victory of hope over experience. It looks like a short-cut through the capital market. Instead of gaining experience over time, you choose a path that you hope will increase your understanding of the product, which is an entire world in and of itself - the capital market.

Anybody who thinks the graph has it all, should know that the graph has almost nothing except for past share prices. It has nothing over reading coffee grinds or Tarot cards.

Any attempt to determine numbers at which the market will react in a certain way is doomed. It won't help to set the boundaries between 818.45 and 766.68 points. Adding that second decimal place adds a veneer of accuracy to the method, but the truth remains what it is: it's just another point on a stock's ride up or down.

Some say that since the system exists and has many supporters, it's a case of the tail wagging the dog. Ergo, when the market reaches a certain point marked by the chartists, it will react. The believers will react, or the ones who don't believe will react because they know what the believers are thinking. Reverse psychology.

By the way, "reverse psychology" is the alpha version of game theory. Who's prepared to bet how a player, who knows that 800 points is a support level, will react when the market reaches 800 points? Does the knowledge that that player will buy, not mean that somebody will be found to sell to him, knowing the believer will buy?

The capital market is replete with players and strategies. People scrabbling about for accurate points are wrong. The market achieves its balance at any given moment, or second. There are no magic numbers at which it feels more comfortable. There is no number that has some mystical ability to brake economic, political or security-related events.

The capital market lives, breathes and kicks because of the money streaming in or out. That money arrives from people influenced by events and developments, plus an element of greed offset by fear. That is the whole story. It is a story, not a pretty graph.

http://www.haaretz.com/hasen/pages/ArticleContent.jhtml?itemNo=683348

Dubi







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