Why do I use technical analysis?
A quick, technical take on Apple's breakout.
I plan to become much more involved in this newsletter in the days and weeks to come. I’ll still be posting long-form content, but I’ll also share some quick ideas here and there. I also plan to finally start managing a public portfolio where I will share how my ideas, analysis, and opinions are translated into an actual investing strategy.
For today, check out the chart of Apple I have posted above. This is a weekly chart, showing Apple is breaking out today from a one-year consolidation pattern. This comes after Apple presented its new AI product, Apple Intelligence.
Forget the fundamentals for a second. This post is only about the chart, the technical analysis. Why do I use technical analysis? It is a way of “sub-contracting” the fundamental analysis to the institutions that have more time and resources than I have. If those institutions like a stock, they will purchase it. If I can train myself to spot those fund flows early in the accumulation phase, I can “steal” their investment idea — perform my own fundamental analysis to see if I agree, and then make a trade.
This “sub-contracting” concept is why technical analysis is useful, as a way to quickly scan hundreds of companies and pick out those, to be subjected to further analysis, that seem to be attracting significant attention from institutions.
Today, Apple qualifies as a stock that is attracting a significant amount of attention. From a technical standpoint, the evidence suggests that the prolonged period of sideways consolidation, which has persisted for over a year, is concluding, and the likelihood of significantly higher prices is increasing considerably.
It’s important to remember, technical analysis is a tool. As is a paintbrush. Trained artist can create value using a paintbrush as their tool. An experienced technical analyst can also create value, using charts and indicators as a tool.
But that is all it is, a tool. It must be combined with other tools, valuation, fundamental analysis, behavioral finance, experience, etc. to build a successful investment portfolio.
If you have not read about Apple’s AI announcement from yesterday, you can check it out here: Apple Intelligence Revealed at WWDC 2024 as Company Jumps Into AI Race - The New York Times (archive.ph)
For a introduction to technical analysis, see this: Technical Analysis: What It Is and How to Use It in Investing (investopedia.com)
— Brant
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