Provided you are not a “Taliban” of investment there is no opposition between technical and fundamental analysis. I am still dubious about what nowadays is technical analysis, since I think that there is a big divide in between “modern” technical analysis, where all the methodologies are thoroughly tested in the past, and “classical” technical analysis, where just the artistic side of chart reading prevails together with some mystical approaches like Fibonacci, Gann or Elliot waves. But for sure everybody knows what is “fundamental” analysis, both macro and corporate, so that every comparison is easy to draw. I will make a confession in this column: It has been many years (around 2008) since I started to work and employ fundamental analysis both in terms of macroeconomic forecasting and corporate evaluation. The trigger of this big change in my approach was that I am a lucky reader of the reports issue by one of the most outstanding investment banks in the world and I discovered that in many cases a quantitative toolbox with a fundamental focus can help to understand where the markets are heading (a kind of fusion analysis that Ralph Acampora loves so much). Would I suggest you to go through all my experience ? No, it would cost you a life. What I suggest is to pick up a reputable investment bank and simply follow its reports. The air you will breath reading the reports will give you more than a hint of what is really happening in the real economy. Obviously the approach in terms of entries and exists must be quantitative. But for example stock selection is a gold nugget when you employ first earning growth analysis and then a technical entry and exit point. The big mistake is moving from one investment bank to the next one and then to another one choosing only those reports that tell you only what you want to listen. Having just one research team close to you helps you to be consistent and ride just one side of the market: it is impossible the same bank will be long, short or out the same market. if you are picking one of the biggest investment banks many joke saying that they are almost always right since following their own recommendations they are so big that they move the markets. I do not know if this is true I simply know that for research they are really the best. But please follow my advice: choose just one investment bank and follow it and do not turn around looking for those news that you would like to listen. The last worst mistake that you can do is then to read the same report summarized by a journalist on the financial press or worst on a website. Reports must always be read and understood in the original version without any kind of interpretation by third parties. Sometimes it is really hard to read a macro report since you need to serve two purposes: understanding the macro concept and also smell the political implications in terms of “politically correct” that the analyst must respect. In many occurrences the analyst must also serve the needs of justifying some money managers of the same company that is losing money so that a clear view on the interior innings of how a big bank works are essential to not be trapped in some kind of crosswords puzzle.
Emilio Tomasini is Chief Editor of the Italian edition of TRADERS’ MAGAZINE (www.traders-mag.it), the leading monthly publication in Europe for trading and investment, and since 1999 he organizes the TRADERS’ CUP the most important real money European trading competition (www.traders-cup.it). His personal weekly free newsletter L’Indipendente di Borsa (www.indipendentediborsa.it) is one of the most reputable Italian financial media and counts more than 100.000 readers. His website in English is www.emiliotomasini.com