A Question of Timing: Technical Vs. Fundamental Analysis
Learn when technical analysis usually soars in popularity
by Bob Stokes
Updated: March 19, 2019
Broadly speaking, technical analysis focuses on the internals of the market -- such as volume, new highs vs. new lows, momentum, trendlines, chart patterns, etc.
On the other hand, fundamental analysis is about factors outside of the market. These include corporate earnings, interest rates, government policy, world events and so on.
So, which camp has the best approach to determine the next move for stocks?
Well, interestingly, three finance professors offer an answer. The results of their study published three-and-a-half years ago, yet remain relevant (Marketwatch, September 2015):
The focus of their study were a thousand pairs of recommendations made between November 2011 and December 2014 on the TV show "Talking Numbers" ... The first half of each pair was a recommendation from a top technician about a stock in the news; the second half was a recommendation about that same stock from a leading fundamental analyst.
This chart shows the results:
In the nine months following each recommendation, the stocks technical analysts identified as strong buys on average outperformed the broad stock market by 7.9%. The stocks they mentioned as strong sells underperformed by 8.9%.
By contrast, the strong buy recommendations from fundamental analysts underperformed the overall market during the same timeframe. Moreover, the fundamental analysts' strong sell recommendations performed closely to their strong buys.
Technical analysts were the clear winners.
Even so, technical analysis is largely ignored in the financial press these days.
The just-published March Elliott Wave Theorist explains why:
The reason for the present dearth of interest in technical analysis--that is, analyzing market conditions as opposed to events and conditions outside the market--is historic financial optimism. When investors feel optimistic, they believe in external, mechanical causes of stock market movements. When they are pessimistic, they search for internal, organic causes.
For evidence, you don't have to think any further back than the 2007-2009 financial crisis, when headlines like "How Did Economists Get It So Wrong?" appeared in spades (NY Times, Sept. 2009).
Elliott wave analysis is a form of technical analysis. Our Elliott wave experts are now telling subscribers when they expect a shift from historic financial optimism to the start of a historic pessimism -- again.
Prepare now for what they see ahead by reading our investor-focused Financial Forecast Service, risk-free for 30 days.
See the Elliott Waves Unfolding Right Now in Major U.S. Financial Markets
That's right -- the chart patterns of stocks, bonds, the greenback, gold, silver and more -- are telling a story that you need to know.
Anticipate high-confidence turns in these markets -- before they happen!
Tapping into our timely insights is easy and requires no obligation on your part for 30 days.
Look below for the important details …
Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns
Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
As featured in: