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JPMorgan: Why I'm Selling Short

Unfortunately, many of the articles on the SeekingAlpha website cite technical analysis to support their hypotheses. Easy to do, easy to understand, however, not true to the concept underlying the financial term "alpha", which refers to the difference between a stock's expected return and its required return according to the security market line, a concept derived from the CAPM (capital asset pricing model). The CAPM is the precisely what moved Wall St. analysts away from technical analysis.

Technical analysis is not supported by quantitative evidence. There are some short-term qualtitative phenomenom well explained in the study of "behavioral finance". Most technical "analysis" is subject to selection bias, referencing, e.g., it always amazes me how the building head-and-shoulder became a "failed head-and shoulder", or how technical "analysts" use a wide range of moving averages, e.g. 45 day M.A. instead of a 50 day EMA, when it seems to support the conclusion they are looking for.

If you do not have the statistical skills to evaluate outcomes based on technical analysis, another approach is to take a look-back six months from now, at stories like this one on JPM. Do it, and you will learn that investing based on technical analysis does no better than chance, if that ...

As for the specifics of this story,well, the comments made before me are right on. Small investors pay high commissions and spreads relative to their small positions. They often do not use derivatives to limit their risks, (e.g. interest payment, timing ex-dividend ). Trying to time short-term short trades on relatively high-dividend stocks with strong insitutional support is a losers game.