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How accurate are Analysts?

 

 

 

There are plenty of financial analysts appearing on TV stations like CNBC and Bloomberg every day. They give their opinions based on their firms research and the underlying fundamental analysis. There are also plenty of analysts who give the 'Upgrades/Downgrades' for the stocks they cover. These calls appear on many financial websites. They are also based on their own firms 'extensive' research. They are supposed to have done a thorough analysis of the company and its products, both current and future. They have done analysis for the markets the products sell in, the company's competitors and so on. After this research is completed, they issue a 'buy-hold-sell-overweight-underweight-sector perform-sector underperform-sector overperform-reduce-add' advice. After individual investors and traders are done deciphering the analysts code language and if they have any more enthusiasm for stocks left, they are supposed to take action. How easy!

 

 

Now what happens if two separate financial firms issue contradictory advice on the same stock? On July 16th, UBS downgraded Sandisk Corp (SNDK). On the same day, CIBC upgraded SNDK, which incidentally they had downgraded on July 2nd. What is the common investor supposed to do with this 'valuable' advice?

Answer- We don't know!

 

 

The following is a weekly chart of SNDK. You can notice where the analyst actions were. From a candlestick investors perspective, there is no significance to those calls. Why did the analysts not issue any upgrades when the stock was in the upper 30's. As a candlestick investor, you would get in on the confirmed Bullish Engulfing signal right on the 200 week MA (Point A below). You could also have bought the stock, as it broke resistance and the 50 week MA (Point B). Both the investments would have resulted in a good profit, but more importantly, they would have given the investor a reason for their action. This would have also given them a perfect stop-loss point.

 

 

Candlestick investors and traders have a distinct advantage over those investors who blindly follow the analysts on TV or on other financial media. Learn to apply these simple common sense techniques to your investing/trading methods and the results will be amazing.

Chart courtesy stockcharts.com