We’ve found another delusional-technical analysis hater. Jeff Nielson writes:
However, readers are right to be skeptical about the “chart strength” that gold has demonstrated. As I continually remind people, “technical analysis” is the least significant aspect of market analysis. This will naturally enrage the “T/A jockeys”, who like to pretend that technical analysis is all-powerful — simply because it is fast and easy, and requires no genuine comprehension, other than the ability to spot patterns in pictures.
This complete reliance upon charts rather than fundamentals is more than merely simplistic, it is dangerous. This is due to the fact that all technical analysis is based upon a long list of assumptions — all of which must be true, or all statistical validity of such analysis instantly evaporates. Thus, the appropriate way to demonstrate the “unsinkable” status of gold is through fundamentals-based analysis rather than statistical hocus pocus. It is here that gold shines even brighter.
Clearly, Mr. Nielson has a very limited/incorrect view of technical analysis. I challenge anyone to read this, this, and this and still conclude that relative strength is not effective over time. There may be many technical (and fundamental) investment methodologies that can not be statistically demonstrated to work over time, but there is no need to throw the baby out with the bath water.
Just had a luncheon today with the author of the above book. He tests many factotrs to determine suitability and statistical signifiance. His conclusion was a fundamental factor (FCF/price) coupled with price momentum produced the better results. If I recall correctly, these findings are similar to the book by Richard Bernstein.
I find using ETF’s takes care of the fundamental research, then I apply price momentum (technical analysis) for entry, exit, and risk management strategies.