Does Equity Research look at Technical Analysis?
Would your typical ER associate at a BB ever use technical analysis when analyzing a stock? Also, how much is one expected to know about options/derivatives?
Based on my experience and sector only:
Not a lot of technical analysis at all for me. We look at some stuff like trading volumes, moving averages, resistance levels, but not extensively and we never publish on it (more for our own interest/use).
Look at anything that impacts sharecount and EPS dilution (convertable prefered stock, convertable debt, stock options, warrants, rights, grants, etc).
I would assume this is true for most ER teams.
There are technical analysts in BBs that focus only on technicals and forget the fundamentals. I receive technical analysis research from JPM daily.
Technical analysis is a joke.
I wouldn't say it is a joke. It has it's time and place, you just can't put too much stock into it.
There are plenty of times where technical analysis proves succesful, but you really need to see a combination of 4-5 different indicators all pointing to a "Buy" or "Sell." It measures momentum very well, but the reason I think technical analysis is prone to failure is because it's hard to go against the broader market. It may be saying "BUY!" for Stock XYZ but if a global financial crisis comes along, it doesn't matter for shit because the entire market is going down.
It's a useful tool that should be emplolyed in addition to fundamental research. Use fundamentals to find undervalued companies and use technical analysis for better entry & exit points.
We use technical analysis at my fund, but it is mostly due to positions sizing/ trimming than new idea generation because abc technical indicators are flashing. We use it to monitor our position, where is the stock relative to the 50 DMA? If a stock is trading above its 50 DMA we usually cut it back because the chart is now momentum driven etc. Is the 50 DMA trading below its 150? Most likely needs to work itself out in the near term, forgot it; no alpha will be generated this month. Is the chart rolling over and broke it 50 DMA we should probably trim back our position if its above 1% because the stock needs to correct etc..
Fundamentals = WHY Technicals = WHEN
Is technical analysis considered as part of the ER industry? (Originally Posted: 02/12/2013)
Sorry if the question sound noobish to you. Since my experience is not qualified for applying to BBs, I've been looking to join an ER boutique in Hong Kong. After some in-depth research, I realized most of these shops don't even practice fundamental research. Instead, they rely on extensive technical analyses and judgments. So is the fundamental/technical preference geographical or what? How can I find out more fundamental research shops in the region (Hong Kong)? Thanks
Don't know about HK but in the US equity research is focused solely on company and sector fundamentals. Technical analysis is not done by ER people. People who would look at technicals have names such as "Equity Strategist," "Portfolio Strategist," "Technical Analyst," and some econ research guys use technicals in the sense that I've seen an ISI group economist use things like comparing the inverse of oil prices to US equity prices etc.
The above is correct. One caveat i would make is a "basics (moving averages etc.)" is certainly helpful. Sometime the technical desk will send over information to you or something will hit the tape about a basic technical trading indicator.
Will it be asked in your interview? unlikely Will you use it for the job? Maybe a couple times a year, as a talking point.
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