Fundamental vs Technical Approach - Which is Better?

When it comes to picking stocks, the age old debate of which is better, fundamental or technical analysis, has generally found study after study saying that neither is better than the other. Now comes a study that sheds new light on this controversial subject - light that suggests that there is some real value in a technical approach as compared to the fundamental approach.

Personally, here at TA Today, we are convinced that there is value - especially with neoclassical analysis - since it is focused on all three technical tools of time, price and volume, in order to glean clues about what the coming market direction is as well as individual stocks. This study out of Israel basically says that there is a marked difference in the performance of technicians when compared to fundamentalist when it comes to picking stocks. The study, interestingly enough, concluded that performance for picking market direction was poor overall - especially on the general indexes. That should be no surprise to TA Today readers as L.A. continually tells us if we focus on the here and now and we'll be where we need to be in a year without having to predict that.

Talking Numbers Broadcast

Here's the papers abstract and you can download the full study here

 

Talking Numbers: Technical versus Fundamental Recommendations

 

Abstract: This study assesses the economic value of technical and fundamental recommendations simultaneously featured on “Talking Numbers,” a CNBC and Yahoo joint broadcast Technicians display stock-picking skills, while fundamentalists reveal no value. In particular, technicians overwhelmingly outperform fundamentalists in predicting returns over horizons of three to nine months and moreover they produce large alpha with respect to the Fama and French (1993) and momentum benchmarks. Considering market indexes, Treasuries, commodities, and various equity indexes, both schools of recommendation generate poor forecasts. Overall, the evidence shows that proprietary trading rules could, at best, enhance investments in single stocks, while returns on broader assets are unpredictable.