Technical Analysts : Predictably unpredictable?

Jayant Pai | jayant@ppfas.com

Ever since a well known channel (Channel X) hired the services of a phalanx of technical analysts by poaching them from another channel (Channel Y) and offering them eye-popping remunerations, I have been tracking their performances. I am not a fan of technical analysis and after listening to them for the past couple of months, I do not think I will be converted anytime soon.

When they began their sojourn at the channel, the markets were rising steadily. At that time they held out that markets would soon make a new high and that the “market structure” looked sound. Sectoral leadership would continue to be provided by the same sectors which had led the bull run for the past two years viz. autos, banks, technology and pharmaceuticals. However, as stocks began falling like nine-pins they slowly came around to the view that markets were indeed weak, the bull run appeared to have ended (this, after a 11-12% correction in the Nifty from the top) and the aforementioned sectors would now lose their leadership and would soon be replaced by some new (as yet unnamed) sectors in due course.

A couple of them started predicting further corrections of 15-20% from the current beaten down levels, citing all the negatives which were already well known, viz. Poor IIP data, high inflation, the events in the Middle East, FII outflows, etc. This is surprising, considering that technical analysts have always maintained that in their discipline they close their ears to events and believe only in the charts they see in front of them.

Remarkably, their confusion regarding the overall market direction did not deter them from giving DAILY stock ideas to the viewers such as Buy so-and-so at Rs. 120, with a stop-loss of Rs. 116 and a target of Rs. 128……I personally think such ideas are a case of the one-eyed leading the blind. Anyone can come up with a laundry list of “ideas” but where is the accountability for the same ?

I wonder how these “star analysts” are different from the myriad other technical analysts on the street. I agree that they may be more experienced but I wonder if this alone is enough. They too seem as flummoxed as the others. Instead of predicting the next move they merely react to it. Of course, it may be too naïve of me to assume that these analysts (or anyone else for that matter) can predict. Markets today are too deep and complex for anyone to do so, accurately and consistently. But if that is the case, is there any justification for placing them on a pedestal? Also, I have a feeling that many viewers will cease to avidly follow them if they really track the performance of their recommendations. But most of them are too caught up in acting on the their next idea, to critically examine their past record.

The most hilarious sidelight to this entire development is that Channel Y has taken to regularly airing the opinions of two USA based technical analysts who merrily expound their views on the Nifty and the Sensex. As if there is a dearth of Indian analysts….

However, I believe that TV channels will always aim to please the majority and hiring such analysts is merely an extension of this objective.

The one thing I can predict with some degree of confidence is that as long as the trading community seeks such ready-made ideas by the bucket load, the future of these technical analysts is very bright indeed.


10 Comments

  1. Why oh why can’t you just blurt out the names of these channels? Can they sue you for your opinions?

    I don’t have a TV at home and hence don’t know what channels you are talking about.. Also I wanted to share your aritcles with my friends so that they are little more wiser..

  2. My dear friend,

    It would have been really helpful for you, if you had spent some time in understanding technical analysis (TA). TA as a strydy of stocks is as old as Fundamantal Analysis (FA) and it has its own merits and demerits. No technical analyst can predict a top or bottom, because when the market turns a technical analyst has to wait for some patterns to develop, that is why they miss initial turning moves.

    But catching initial moves is not the all about investment, lets take a look at current correction, even if a technical analyst after missing initial move would have gone short, he/she would have still made money.

    And what about our dear fundamental analyst, which are now changing our recommendations to SELL on infra/construction companies (such as Punj Lloyd, Suzlon, GMR, Lanco) after they hava fallen 50-60% in last 3 months. And what were they expecting the sensex EPS for Mar’09(FY09) in Jan’08…did it come???

    It is very easy to criticize any form of analysis, but it is wiser for one to focus on his core competencies if he/she doesn’t understand others…rather then criticizing it without knowing it!

  3. Very true.The future of the analysts is certainly bright with the unstinting support of their followers.Quite hilarious is the flip flop of these “experts” as the markets ebb and tide in quick succession.

  4. Dear Anshuk,

    Thank you for commenting.

    I take recourse under the axiom “Discretion is the better part of valour”. 🙂

    I would be delighted if you shared the articles with your friends. The more the merrier…..

  5. Dear Catalyst,

    Thank you for commenting.

    Please note that I have not criticised the discipline of technical analysis. No doubt, every technical analyst requires a pattern to unfold before arriving at a conclusion. I have only said that I do not see any superior skill in these particular analysts when compared to several other technical analysts. If a particular peer group is seen as superior to others (the way the TV channel was making them out to be in their advertisements) they must demonstrate their superiority. Have they demonstrated that ? Please let me know at your convenience….

  6. I agree with Jayant. Technical analysts merely swim with the tide. If the market rises for a few days, they will say that it will go to 21000.If it falls for a few days, they will say that charts are week and it will go to 15000. i dont think any special expertise os required for that kind of forecast.
    The only reason that technical analysts are promoted is the brokers want people to follow TA’s and make frequent transactions so that they get their brokerage. Some people also follow them and transact frequentely just to be “in it”,not wanting to miss any action.

  7. I think technical analysis is a very helpful tool. I have studied both TA and deep value investing, and I do think its best to incorporate both in your portfolio to beat the market. Indeed, some of these analysts on TV are very often way off with their readings, as they do not/are not able to decipher movements correctly. Nevertheless, I started out as a Technical Analyst into the markets, and years hence, I still use it extensively and quite successfully! Thanks for bringing this flaw out 😉

  8. Hi Ashwin. Thank you for your detailed comments.

    As I mentioned to another reader, my basic grouse is not with the discipline of technical analysis but the pedestal that some of these analysts are placed upon.

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