Jim Cramer's Latest Rant, Technical Analysis is Voodoo Mumbo Jumbo

Stock-Markets / Technical Analysis Mar 06, 2009 - 10:51 AM GMT

Best Financial Markets Analysis Article Jim Cramer is at it again -speaking before thinking and pontificating on a subject he knows very little about. Before we get to another Jim Cramer "moment" let me state that I have no personal axe to grind with him, and in fact, as a former contributor to TheStreet.com , I am indebted to Jim Cramer for giving me a start and some credibility in the financial publishing business. I don't know the man, and I doubt he is even aware of my existence. I think he is genuine about helping investors, but I guess his downfall is that he must be a entertainer first and an analyst second. It is a tough job.

Where I take umbrage with Mr. Cramer is in the following CNBC "Mad Money" segment shown on March 3, 2009. Cramer calls technical analysis "hocus pocus", "voo doo" and "mumbo jumbo".

Gee, now I know why I don't get it right all the time. I was practicing "voo doo". I should have paid more attention to fundamentals. Not!

While I am not here to defend the art/ science of technical analysis, I believe folks have difficulty with TA because they expect it to be a science, but they really practice it like an art because they haven't done the homework to find what works and what doesn't. In my opinion, using tools and indicators that work fair at best will yield fair results. Using tools that you have no idea how they work is definitely a recipe for disaster. I suspect a lot of people use TA in this fashion.

The study of price movements (i.e., technical analysis) is the purest form of fundamental research. After all, everything that is known about an equity or an asset should be reflected in the price. Technical analysis also lends itself to rigorous analysis. One can easily quantify -if they do the homework - the significance of certain price movements. This doesn't mean that TA is always right, but it can easily improve the odds for success.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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Comments

Mark Hannabury
07 Mar 09, 13:58

I do understand why the efficacy Technical Analysis continues to be a matter of debate. It seems like it would be a simple matter to devise analytical methods that would test it definitively, one way or the other. All of the back data exists. Randomly pick the dates and then the particular stocks, futures, indices or whatever.. Compare what TA predicts against what actually happened. Compile a success rate. Then we should know. Obviously I am not the first to think of this so am I missing something?

Joeseph Pegoslavi
21 Feb 12, 12:30

TA vs. FA

I have read several studies that used computer programs to search through stock charts for common technical analysis patterns (head-and-shoulders, reversal patterns, et cetera). None of them were shown to work. If I am to believe someone that technical analysis works (substantially), I feel it is reasonable to ask for either logical or empirical proof. So far, either no one has any, or it's hidden beyond my research capabilities. Plus, technical analysis disagrees with a number of generally accepted economic theories: weak-EMT, fundamental analysis, et cetera.

Nadeem_Walayat
21 Feb 12, 13:31

TA vs FA

The way to make TA work is to be SKEPTICAL in its application ;)

I always ask the question, should I accept what a particular TA tool is telling me today or not, because it is not always clear, there are times when you need to ignore TA that is where experience comes in to know when a tool is reliable and when it is not.

For instance whilst I use EW theory, I don't subscribe to any of its tenants, if it's clear then I use it, if its not then ignore it. I don't bend over backwards to make it work with crazy double X's etc..

Best

P.S. the same holds true for FA.

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