Wednesday, July 8, 2009

Wednesday Follow-up

Apologies for not covering the Nasdaq but they suggested I cut my word count. Besides, the Nasdaq does not have a head-and-shoulders pattern anyway.

Here is a paragraph I wrote for the piece but did not include in the version I sent in for editing. If anyone thinks technical analysis is voodoo (you would not be reading this blog, for starters) here is proof from two unlikely supporters:

"Technical analysts have validated the head-and-shoulders pattern, of course, but both government and academic research has found merit in its predictive power. A paper published in 1995 by the New York Fed said the pattern did indeed have predictive power. And more recently, Prof. Andrew Lo of the Sloan School of Management at the Massachusetts Institute of Technology (MIT) completed a study of the pattern, calling it “very valuable information.”

I don't want to deceive here as both studies were not 100% in the chartists' camp. Some patterns worked and some did not. Some worked in some markets but not in others. But the bottom line is that head-and-shoulders patterns are real, have value and can help a skilled practitioner make money.

Just to end on a light note, here is something I added knowing it would not make the cut during edit:

I wrote: Not to be dramatic but the ensuing cry that arose was like Paul Revere's ride alerting the masses of the danger coming.

Then I followed with: The bears are coming! The bears are coming!

Maybe you have to be an American, or at least a student of the American Revolution to get it.

I'm out of time tonight so if anyone wants the links to the Fed and MIT articles, just ask.

2 comments:

joe said...

I would really appreciate the links to the Fed and MIT articles.

Thanks!

Quick Takes Pro said...

http://www.newyorkfed.org/research/staff_reports/sr4.html

http://www.mtaeducationalfoundation.org/documents/A.Lo_-S_C_article.pdf