Investing

When Technical Analysis Gained Respect

For a long time, Alan Shaw didn't tell clients the real reason for his market calls.

"How could these stocks be making tops when my fundamental news is right on line and when earnings are coming through for all my companies? It doesn't make any sense." That was the reaction of now-legendary technician Alan Shaw when he began his career on Wall Street in 1958. He was looking for something other than fundamental research to help him make stock and market calls. Charts were the answer.

During his long career, Shaw often had to hide his research from clients, tapping into his analytical team to come up with fundamental reasons to pitch a specific stock. The choices were technically driven, but he couldn’t let clients know that at the time.

But charts served him well, and he avoided equities during the bear market that lasted from 1966 to 1982, when the Dow Jones Industrial Average bounced between 600 and 1,000 before finally breaking out. Charts helped Shaw see that the bull market that lasted until 2000 was real.

Perhaps Shaw's greatest market call was in May 1985, in a research note titled "The Technical Bull Case for Bonds.” He told his clients that “based on our technical analysis, we believe that a structural bull market is underway for bonds; short, intermediate and long term indicators are allowing the best bond bet to be made in possibly the entire investment career of the reader.”

But the era that Shaw thrived in has passed. As he says, the "days of charting stocks by hand are over."

You can stream/download the full conversation, including the podcast extras, on iTunes, Soundcloud, Overcast, and Bloomberg. Our earlier podcasts can all be found on iTunesSoundcloudOvercast and Bloomberg.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Barry Ritholtz at britholtz3@bloomberg.net

    To contact the editor responsible for this story:
    James Greiff at jgreiff@bloomberg.net

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