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Selection Bias
Jun. 20th, 2010 02:20 pmDavid Schwartz is the FT's Saturdday columnist in the Money section who writes about technical trading, resistance points, double tops, and the like.
This week he's said that he has been encouraged by the rebound in the FTSE 100. But what Schwartz then says that the heavy Footsie weighting of BP has "distorted" what Schwartz presumably thinks is a "truer" real FTSE 100 chart line.
I'm distinctly unhappy about this analysis. Schwartz never muttered about the heavy weighting of BP in the FTSE 100 when the bP share price moved from the mid-500s to the mid-700s.
Similarly, if funds have to invest somewhere in the FTSE 100, and if they pull out of BP, then this would serve to artificially boost the "non-BP" FTSE 100 line.
There's plenty of reason to argue that the FTSE 100 is artificially weighted in favour of certain companies which means that its movement is not a true reflection of market senntiment, but the point about technical trading is that you can't bring these factors into play after-the-fact. Either chartism works or it doesn't.
Scwartz doesn't actually call himself a technical trader any more (not in the FT column anyway), perhaps because in the equity market it's been historically unreliable. But technical analysis is notable for seeing "trends" in hindsight. But Schwartz is a short-term trader (where technical analysis in heavily traded stocks is not an invalid strategy) writing about fundamental matters. It makes for an odd mix.
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This week he's said that he has been encouraged by the rebound in the FTSE 100. But what Schwartz then says that the heavy Footsie weighting of BP has "distorted" what Schwartz presumably thinks is a "truer" real FTSE 100 chart line.
I'm distinctly unhappy about this analysis. Schwartz never muttered about the heavy weighting of BP in the FTSE 100 when the bP share price moved from the mid-500s to the mid-700s.
Similarly, if funds have to invest somewhere in the FTSE 100, and if they pull out of BP, then this would serve to artificially boost the "non-BP" FTSE 100 line.
There's plenty of reason to argue that the FTSE 100 is artificially weighted in favour of certain companies which means that its movement is not a true reflection of market senntiment, but the point about technical trading is that you can't bring these factors into play after-the-fact. Either chartism works or it doesn't.
Scwartz doesn't actually call himself a technical trader any more (not in the FT column anyway), perhaps because in the equity market it's been historically unreliable. But technical analysis is notable for seeing "trends" in hindsight. But Schwartz is a short-term trader (where technical analysis in heavily traded stocks is not an invalid strategy) writing about fundamental matters. It makes for an odd mix.
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