Technical analysis of stocks can boost the power of your fundamental research

You can use technical analysis in combination with your firm’s fundamental equity analysis to help decide when to buy or sell stocks. This is the message I took away from “Applying Technical Analysis to a Fundamental Investment Strategy,” a March 23 presentation to the Boston Security Analysts Society by David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. 

Technical analysis is not voodoo science, throwing darts at a board, or even a prediction of the future, said Keller. Rather, it’s a way to analyze supply and demand using patterns, he said.

Fundamental research and technical analysis tackle different parts of the decision to trade a stock. Here’s how Keller described them.

  1. Fundamental research analyzes the company for the what and why of buy and sell decisions.
  2. Technical analysis analyzes the stock, looking purely at market activity for when and how to buy or sell

These two approaches overlap, in the opinion of Keller and the Fidelity portfolio managers who use his team’s research. Technical research helps to identify the best time to execute a fundamental strategy, he said. You can think of technical analysis as a trigger, he said.  

When the results of technical analysis diverge from those of fundamental research, portfolio managers should pay attention, according to Keller. He referred to point and figure charts as “a gut check on how I look at individual stocks.”

Relative strength indicators are among the most important technical indicators, Keller said. They can be warning signs, he added.

Keller’s message was warmly received by members of the audience, most of whom raised their hands when asked if they regularly consulted technical indicators. 

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