INTERVIEW
The Technical Tradition Continues
Richard McCabe Of Merrill Lynch
ILLUSTRATION BY CARL GREENContinuing the technical tradition begun by Bob Farrell, Merrill Lynch chief market analyst Richard McCabe has been Mr. Technical Analysis at the world's largest brokerage since 1993, following in Farrell's footsteps. McCabe heads a staff scattered around the world that brings to the company's stock evaluation process the insights into the market's condition that technical analysis offers. A Merrill Lynch loyalist his entire career, McCabe joined Farrell's shop in 1964 and has practiced technical analysis since then. What approach has been sanctioned by the brokerage's movers and shakers? How does Merrill fit technical analysis into its world and present it to its customers? And which customers listen? STOCKS & COMMODITIES Interim Editor John Sweeney conducted this interview via telephone on March 27, 2000, to get a take on technical analysis in the big time.
So what are the responsibilities of Merrill Lynch's chief market analyst?
Pretty much what it sounds like -- to oversee the Market Analysis Department, to follow the market and individual stocks from a technical perspective, and providing market commentary, providing analyses of individual industry groups, and individual stocks. Working with the other parts of Merrill's research effort. Providing guidance to our industry analysts, on how their groups and individual stocks -- stocks they are following fundamentally -- look at a given time. Having a lot of contact with our salesforce, and in some cases with their clients, doing a lot of work with professional clients with a technical interest, like institutional clients, and providing information to our investment banking arm when they need opinions on existing stocks with whose company management they may be working.
How does that work?
In that case, they often like to discuss how that company's stock is performing technically and what the trends are, where support and resistance levels might be. So I work a lot with institutional sales, trading and investment banking, as well as others in research.
Does Merrill have a sizable contingent of technical analysts?
Yes! We have 11 technical analysts. Currently, we have eight who are headquartered here in New York, including me. We have two technicians in London, one of whom, of course, follows the British market. The other technician follows the other continental European markets. We have one person up in Toronto who follows the Canadian market.
What about the Asian markets? Does anybody follow those?
That's done here. Three of those eight in New York, as well as the three that I mentioned in Great Britain and Canada, follow international markets. Walter Murphy, who is stationed here, oversees the whole international effort. He follows Japan and oversees the rest of international effort. Sonia Dawson, since you asked about the Asia-Pacific market, follows both the Latin-American and the Asia-Pacific region. Barbara Eden follows the emerging markets, mainly in Europe.
What is the background of your typical technical analyst at Merrill Lynch? How do they end up there?
In terms of academics, most of them have an economic or financial background, although some who have worked here, either now or in the past, have had backgrounds in English literature, political science, or mathematics. Some of them got into it because they had that mathematical bent. Some have had their majors in psychology.
So it's not just business backgrounds.
No, it's been varied. Some of them have master's degrees in business. Two of my people are Chartered Financial Analysts. It's usually that our people got interested in technical analysis, and then somehow find their way to us, either by resume, a friend, or an acquaintance, and then when an opening comes up, they somehow fit in. It has been our opinion -- mine and that of Bob Farrell, who was the chief market analyst before me -- that when we're looking at candidates, we try to find somebody who already knows the field and knows that he or she has a real interest in it, so it is not a matter of, "Well, I'll learn about that field and then decide whether I like it." We prefer to have somebody who perhaps doesn't have an extensive professional technical background, but he or she has to have enough of an understanding of technical analysis to know that they really like it and want to be in it. They really have to want to drive hard at it.
Do they tend to come from a fundamentalist background?
Not always. Walter Murphy, one of our senior people, was head of fundamental research at Standard & Poor's before he joined us, back in the early 1980s. He has a CFA designation and earned an MBA, and he was doing that work, but he was also writing a market letter for his own interest using technical analysis. We met through a mutual friend, and when an opening came up at Merrill, he was interested, and he made the switch from fundamental to technical. Most of our technicians have had some business background, but they have not necessarily had positions as fundamental analysts before they became technical analysts.
So technical analysis is still a field where you learn on the job?
It is, to a great extent. A lot of technicians read the various major works on technical analysis. Some of them took different courses available here in New York at the New York Institute of Finance, those courses they give in technical analysis. But it is mostly on-the-job training -- you start in the position keeping indicators, learning what the indicators mean, and looking at individual charts. Maybe being assigned to work with a senior analyst in the group and working their way up the ladder. Most people here started in that role as trainee or junior analyst, and then worked their way up. In fact, that is how I started.
I guess effort is the right word: putting it all together -- strategy, economics, then technical -- and coming up with an opinion. There is always an interest in following the market, knowing what the market opinion is about a stock or about the economy. Technical analysis is part of that. -- Richard McCabe
Excerpted from an article originally published in the July 2000 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2000, Technical Analysis, Inc.