By Lawrence G. McMillan
There are two major approaches to analyzing markets—technical and fundamental. Most investors are familiar with fundamental analysis. That is the process by which analysts attempt to forecast the future profits of a company by analyzing their market penetration, pricing structure, and other things having to do with the actual operation of the company’s business. Technical analysis, on the other hand, has nothing at all to do with the tangible operations of the company. Rather it is an analysis of the price of the company’s stock. Technicians (practitioners of technical analysis) feel that past price patterns leave valuable clues as to the future direction of prices. Technical analysis can be applied to any price pattern—stock, bonds, futures, and so on. There is merit in both camps, although each camp tends to view the other as being somewhat inferior. This is a classic example of how each camp was “right” and yet each thought the other was wrong.
In 1991, the market was beginning to roll to the upside after the Gulf War was “won.” Many brokerage firm analysts were predicting great things for basic American companies, such as Coca-Cola. Earnings were projected to increase for each of the next few years...
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