Technical analysis: tool or crutch?

It seems funny, in a sad sort of way, the Bedouin-like nature of most stock market participants; that is, they wander about (mostly) alone in the desert of investing.

I have stated repeatedly that leaders lead, irrespective of what transpires in the market-at-large. That is, strong stocks tend to beget a general market rally rather than weak markets beget broken patterns in strong stocks; in the latter, the best patterns merely base, not decline. For example, the negative setup for the market should not have constrained the bullish setup and pattern for Apple/AAPL from fulfilling itself. And the passage of time shows it has not. So it surprises me not at all to read abecedarian-type remarks that AAPL shares were "surprisingly strong [yesterday] in the face of a weak market." Oh, brother.

I have made seemingly disparaging comments re technical analysis. In doing so, I have confused some readers. ("You seem to present conflicting views with regard to fundamental analysis vs. technical analysis. While acknowledging the need for FA, you seem to finally gravitate back to a soley TA perspective. Maybe that's not correct...") I believe both fundamental and technical analysis to be at minimum equally important. However, I consider fundamental analysis be a snapshot whereas technical analysis is dynamic. I prefer to emphasize that dynamic 'motion picture' rather than the snapshot.

Moreover, I rail against the practitioners of technical analysis, not the art itself. There are too few who 'read' the charts able to 'predict' future bars; I could count those few on the fingers of both hands. (And I am not Inigo Montoya!) For most investors, technical analysis proves to be a crutch rather than a tool, as it provides a reason to avoid making investments or even selling too early. I always suggest knowing your limitations ("Know thyself!"); once complete, you can work around these limitations.

Most investors who believe they understand technical analysis only fool themselves. They might know the rules of the various studies (Elliot Wave, Fibonacci retracments, stochastics, moving averages, etc) but lack the ability to integrate that understanding into a coherent whole that says, "This is the low; buy now!" (Or vice versa.) So instead they bob about like a buoy on storm-tossed seas; many times under water.

Their understanding is limited to perceiving only what has occurred, not what will occur; they tilt at the windmill of circumscribing past action (as if the ability to draw a trendline over past action is somehow meaningful) rather than invest today to make money tomorrow. Perhaps, in a personally truthful moment of self-analysis, they might recognize in the charts below some similarity to their investing character. Does either chart resonate for you...?

UPDATED: [click to enlarge]

And yet, I am a very visual person, so I rely very much on chart action, and my perception of setups and patterns. But then I have done the work necessary to perceiving the big picture. You might recall, among others, my in-depth remarks re Apple/AAPL (nailing the low, and coaxing you into the postion for the past 4 months) and the homebuilders (nailing the high, and then screaming for you to sell before the carnage set in).

This blog is my attempt to show that each analysis -- technical, fundamental, valuation, and sentiment -- is critical. And that perceiving opportunity when viewing the charts is not only possible, but probable. Never forget that your greatest reward (easiest money) is made in the best opportunities wherein the preponderance of the evidence in all the analytical disciplines agree.