It’s Time to Rethink the Role of Technical Analyst

By: Lou Mendelsohn

Over the years, with considerable intellectual interest and occasional amusement, I have followed the debate between technical and fundamental analysts as to which discipline is better at performing market analysis. Proponents of each discipline offer cogent reasons why their approach is the better of the two.

For the past decade, technical analysis, more so than fundamental analysis, has benefited from advancements in computer hardware and software, focusing for the most part on “single-market” analysis, in which one specific market under investigation is analyzed in isolation using various technical indicators. John Murphy, in his refreshing new book, Intermarket Technical Analysis, argues in favor of a broadened scope to include the impact of “inter-markets”.

Nevertheless, to date, little progress has been made at synthesizing technical and fundamental analytic approaches, into a combined strategy that can outperform either approach by itself.

One proposed solution to this dilemma has been simply to call a truce, whereby each discipline acknowledges that the other has legitimate inputs into any serious market analysis (see “A Plea to Bury the Technical/Fundamental Debate” by Anne Whitby in the July, 1990 MTA Newsletter). Of course, only lip service is given to this proposal, since each camp firmly believes in its superiority over the other at the challenging task of performing market analysis.

With the integration of today’s global markets brought about by advancements in computer and satellite technology, concurrent with the recent application of predictive technologies to market analysis, particularly that of artificial neural computing, the dichotomy between technical and fundamental analysis has become less rigid.

At last, an analytic structure has emerged by which technical and fundamental analysis can be amalgamated. “Neural computing” technology is capable of discerning complex patterns and significant relationships within heretofore seemingly disparate technical and fundamental data, offering the prospect of “superior” analysis through the marriage of both disciplines.

Perhaps it is time for market technicians to engage in serious introspection about the future direction of their profession. Certainly, it would be narrow-minded and shortsighted for us not to examine the role that technical analysis should play in the rapidly changing technological arena of the 1990s.

One possible outcome which could emerge from this self-examination might be a broadened definition of technical analysis. As the boundary between technical and fundamental analysis continues to blur, today’s labels “Technical Analyst” and “Fundamental Analyst” may be replaced by the more inclusive title of “Market Analyst” or “Market Strategist”, whose purview would encompass both technicals and fundamentals within a robust synergistic analytic framework.

Louis Mendelsohn is President of Market Technologies, Wesley Chapel, Florida. For the past two years, Lou has devoted his research to the application of predictive technologies to market analysis.