More advisers turn to technical analysis

Fundamental managers flounder amid downturn

May 31, 2009 @ 12:01 am

By Dan Jamieson

In the wake of the stock market downturn, more financial advisers are turning to technical analysis.

“Every time a bear comes around, it's common for people to start focusing attention on technical analysis, because it's the only field of study where defensive strategies are as important as offensive strategies,” said Peter Mauthe, president of Rhoads Lucca Capital Management Inc. in Dallas, which manages $120 million.

Mr. Mauthe, who is also president of the American Association of Professional Technical Analysts in Chicago, said buy-and-hold and asset allocation strategies are strictly offensive strategies.

They work well in a bull market, but now advisers are searching out new portfolio management tools, he said.

Kristin Hetzer, founder of Royal Palms Capital LLC in Rolling Hills Estates, Calif., compares the current market to the secular-bear-market period from the 1960s to 1970s.

“Technicians did very well then if they traded in the right areas,” such as commodities and energy stocks, said Ms. Hetzer, who manages about $50 million in assets and is chairwoman of the Los Angeles chapter of the Market Technicians Association Inc. of New York.

In the 2003-07 rally, it paid to be in the right styles and sectors, she added.

Technical analysts, also known as “chartists,” use past market data — primarily share price and volume — to forecast the future direction of a company, market, currency or commodity.

Unlike fundamental analysis, technical analysis ignores the actual nature of a particular security.

To be sure, interest in technical analysis tends to come and go with the market's fluctuations.

“With another bull, interest in technical analysis will die down,” said James Davis, a Dallas-based investor and a former financial adviser who leads the MTA's local chapter. “It's like gas prices. When they fall again, people forget about [conservation].”

But as for the belief that technical analysis has little value, “we've seen that [opinion] thaw considerably,” said Henry Pruden, president of the Technical Security Analysts Association of San Francisco and a professor at Golden Gate University there.

Technical analysis provides “some underlying rationale for [irrational] market behavior,” he added. “I don't think there's a first-rate [university] in the U.S. that believes completely in the efficient market hypothesis.”


The MTA, which grants the chartered market technician designation, reports an uptick in interest among both financial professionals and individual investors.

This spring, 700 people took one of the three exams needed for the CMT, said MTA marketing director Tim Licitra. Normally, about 500 sit for the exams, he said.

There is a “degree of shell shock” among fundamental money managers because of the crash,” Mr. Pruden said.

“That opens the door [to inquire] about ... what drives the market,” he added.

Membership growth in his group, which has more than 100 members, has been steady over the last few years, Mr. Pruden said.

But anecdotally, he thinks that there's growing interest in technical analysis.

“Normally, we don't get new members [at this time in the year], but we're now getting a trickle in,” Mr. Pruden said.

He said recent technical-analysis presentations he's given in Denver and Dallas had very good turnout, “and the quality of people was high.”

At the 155-member AAPTA, which is open to financial professionals by invitation only, member growth has been running about 10% a year for the last three to four years, Mr. Mauthe said.

Interest in technical analysis isn't limited to the United States.

“We're having trouble finding room to put people for our events,” said Jeff Parent, president of the Canadian Society of Technical Analysts in Toronto and head of wealth management at Quadrexx Asset Management Inc., also of Toronto, which has $80 million under management.


“Normally, we have 20 or 30 people at our [Toronto chapter] meetings,” he said. “Now we're getting 40 to 50,” which includes both advisers and investors.

The CSTA, which has about 500 members, has seen membership “steadily increasing,” said Mr. Parent, who couldn't provide precise growth rates.

“The way the markets are moving, [advisers] need to find a niche, and all the old tools aren't working,” he said.

The MTA's Mr. Licitra said many chartered financial analyst designees are taking the CMT exams.

The CFA is awarded by the CFA Institute of Charlottesville, Va.

“Many have found that the fundamental side isn't working,” Mr. Licitra said. “They found that a mix [of technical with fundamental analysis] really helps them.”

“People with CFA designations are looking for ways to distinguish themselves,” Mr. Parent said. “A lot of them are professionals, retail advisers, institutional money managers or people looking for jobs.”

Having some kind of sell discipline “is really a way to differentiate yourself,” Mr. Parent added.

Mr. Pruden said his group is looking to partner with financial planners and the local CFA society.

“Those [people] are struggling with getting some differential advantage on their resumes,” he said.

E-mail Dan Jamieson at


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Jun 27


Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video


Mercer's Cara Williams: How to achieve gender parity in the financial advice industry

The financial advice industry can learn from companies and countries that are well on their way to achieving 50/50 gender parity, according to Cara Williams, global wealth leader for the multinational client group at Mercer.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print