HD – Options Trader Tip Of The Week – Video

In the trader tip video below, Brian is having a look at HD (The Home Depot) stock. Looking at the charts, HD has been in a downtrend for most of 2022. It is off about 27% or so from its highs back in December and January timeframe. Longer term, HD seems to be an attractive company at an attractive price.

What we would like to do is get ourselves a trade structure that will allow us some leeway to stay in the trade for a while. And ride out any shorter terms ups and downs pretty well. We are looking at doing a call diagonal spread, going out to December or January, and buying an “at the money” call.

TO LEARN MORE ABOUT THE HD trade setup – WATCH THE VIDEO

Subscribers: Please let us know what you would like to learn, and we will add it to the roster of our weekly Technical Trader Tips!

Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!

TO EXPLORE THE STRATEGIES THAT BRIAN USES, PLEASE VISIT Optionstradingsignals.com. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

Gold-to-Silver Ratio Heading Lower – Setup Like 1989-03

Fear is starting to become an issue. Traders are starting to realize inflation, CPI, PPI, and global currencies are reacting to the sudden policy shift by the US Fed and global central banks. This fear is showing up in the Gold-to-Silver ratio as well.

My research suggests the closest comparison to the current Gold/Silver setup may be found by looking at the early 2000~2003 US markets. Let’s investigate this setup a bit further.

Gold-To-Silver Ratio Peaks Above 1.2 During COVID crisis

Over the past 5 years, Gold consolidated from 2017 through the COVID Virus event. This consolidation is prompting an extreme high in the Gold-to-Silver Ratio to levels above 1.2. The only other time in history when the Gold-to-Silver Ratio reached levels above 1.2 was in 1991~92. This is aligning with the fall of the Soviet Union.

This extreme peak in the Gold-to-Silver ratio marks a very weak Silver price compared to Gold. Psychologically, this represents a very real lack of fear related to global currencies/economies. The threat of extreme inflation trends.

Now, as inflation suddenly became a topic near the end of 2021, the Gold-to-Silver ratio has moved decided downward. This illustrates Silver is rallying compared to the price of Gold as fear begins to elevate across the globe. Traders, consumers, and others are moving assets into precious metals near recent price lows to hedge against uncertainty, inflation, and currency devaluation.

The Fall Of The Soviet Union Was A Global Catalyst Event – Just Like COVID

The collapse of the Soviet Union prompted a global shift in how global currencies, threats, and opportunities were perceived. It also ushered in a new wave of capitalism throughout Russia that prompted a massive credit/economic expansion phase aligned with the birth of the Internet in the early 1990s. This is why we see Gold price levels stay rather muted from 1989 through 2002-03. It was a time of very little fear when global traders chased deals, DOT COM stocks, and Real Estate instead of precious metals.

After the DOT COM bubble burst, and the 9/11 terrorist attacks rattled global financial markets, fear and precious metals suddenly came into focus again. The rally that took place after 2001 in Gold prompted a nearly 600% increase (from $260 to $1923). The biggest portion of this rally took place after the 2007-08 Global Financial Crisis.

Is today any different than 2000~2002 in reality?

The similarities seem too obvious to ignore…

I believe a continued decline in Crude Oil, as well as a continued strengthening of the US Dollar, will likely take place throughout the end of 2022. In the meantime, Gold attempts to climb back toward recent highs. The catalyst for the breakout rally in Gold and Silver will likely be some extended breakdown in the US/Global financial markets and stocks or some new War/Aggression that pulls the US/EU into a conflict.

Overall, I believe global currencies will continue to recoil because of risk/devaluation factors related to inflation and disruptions within the global economy; very similar to the end of the Soviet Union in 1991.

My thinking is that Gold will attempt to hold above $1700 as a base support level while Silver attempts to hold above $19.00 as base support. Any major crisis event, war, or global financial meltdown may prompt a retest of these base support levels within the next 12+ months.

If Gold/Silver Are Repeating A 2002-03 Setup, What Can We Expect In The Future?

Then the breakout trend starts in Gold, which could happen as early as 2023 or 2024, I believe the next rally target for Gold will be somewhere above $3100. Then, we start a dedicated climb to levels above $4500 and beyond.

It is difficult to predict any date targets for this type of rally, but I’m trying to illustrate what I see related to the similarities of the 1989~2003 market conditions with what I’m seeing right now. If you were around to live through this incredibly exciting time, you may remember many of these events. I’m suggesting we may be starting to move through similar events right now and I suspect we are somewhere near August 2000 right now.

HOW CAN WE HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders.com, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter, so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

The Buy-and-Hold Approach to investing is a simple and sensible strategy. It involves identifying quality investments that you believe can grow over time, such as stocks and bonds, and then buying them with the intention of holding them in order to benefit from long-term increases in their value.

Chris Vermeulen
Founder & Chief Market Strategist

CURRENT STOCK MARKET RALLY OR POSSIBLE REVERSAL

Chris Vermeulen of The Technical Traders joins Elijah K Johnson from Liberty and Finance to discuss the current stock market rally and possible reversal. The stock market can also enter a complacency rally and start a bigger correction. The rally could also last a couple more months. We are positioned in some gross stocks, expecting this market to hopefully go higher.

Overall, this market is on a turning point and can roll over very quickly. If it does, the US Dollar will go higher and it is going to put a lot of pressure on precious metals. When money is moving out of the stock market, it seems to move in everything that benefits the dollar index. We may also enter a bear market and if we do, precious metals and miners can come back down and test these levels.

TO LEARN MORE ABOUT Stock Market rally and possible reversal – WATCH THE VIDEO

TO EXPLORE THE Total ETF Portfolio, PLEASE VISIT US AT The technical traders. You’vE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

Downside potential In The Stock Market – Video

Chris sits down with Ivan Bayoukhi and Jim Lewis from Wall Street Silver to discuss the potential downside in the stock market. The stock market goes through four stages and during these stages there are these emotional waves going through people’s veins after the covid crash. This resulted in us seeing this thrilling euphoric wave of gross stock.

In early 2021, we saw gross stocks top out and rollover. We’ve seen the stock indexes like the S & P 500 crack to the downside with a 20% correction. Right now, a lot of people are just starting to feel like they can start buying stocks again already. We call this a complacency rally which is usually a choppy rally that lasts a few months. Overall, there’s a lot of downside potential in the stock market moving forward.

TO LEARN MORE ABOUT the downside potential In The Stock Market, WATCH THE VIDEO

TO EXPLORE THE Total ETF Portfolio, PLEASE VISIT US AT The technical traders. You’vE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

Should We Be Prepared For An Aggressive U.S. Fed In The Future?

Traders expect the U.S. Fed to soften as Chairman Powell suggested they have reached a neutral rate with the last rate increase. The US stock markets started an upward trend after the last 75bp rate increase – expecting the U.S. Fed to move toward a more data-driven rate adjustment.

My research suggests the U.S. Federal Reserve has a much more difficult battle ahead related to inflation, global market concerns, and underlying global monetary function. Simply put, global central banks have printed too much money over the past 7+ years, and the eventual unwinding of this excess capital may take aggressive controls to tame. Investors have looked for asset revesting advisors but they really don’t exist yet.

Real Estate Data Shows A Sudden Shift In Forward Expectations

The US housing market is one of the first things I look at in terms of consumer demand, home-building expectations, and overall confidence for consumers to engage in Big Ticket spending. Look at how the US Real Estate sector has changed over the past five years.

The data comparison chart below, originating from September 2017, shows how the US Real Estate sector went from moderately hot in late 2017 to early 2018; stalled from July 2018 to May 2019; then got super-heated in late 2019 as extremely low-interest rates drove buyers into a feeding frenzy.

As the COVID-19 virus initiated the US lockdowns in March/April 2020, you can see the buying frenzy ground to a halt. Between March 2020 and July 2020, Average Days On Market shot up from -8 to +17 (YoY) – showing people stopped buying homes. At this same time, home prices continued to rise, moving from +3.3% to +14% (YoY) by the end of 2020.

The buying frenzy then kicked back into full gear and continued at unimaginable levels throughout 2021 as interest rates stayed near lows and FOMO increased. Over the past 7+ years, the excess capital meant buyers could sell their existing homes, relocate to a cheaper area, avoid COVID risks, and reduce their mortgage costs with almost no risks. This “great relocation” event likely sparked the high inflation/CPI trends we are battling right now.

US Real Estate Conditions chart

(Source: Realtor.com)

Extreme Easy Monetary Policies May Prompt A Harsh U.S. Fed Action In The Future

Traders expect the U.S. Federal Reserve to softly pivot away from rate increases after reaching a “normal level.” I believe the U.S. Federal Reserve will have to continue aggressively raising rates to battle ongoing inflation and global concerns. I don’t believe traders have even considered what may be necessary to break this cycle – or are simply hoping they never see 14% FFR rates again (like we saw in the 1980s).

The harsh reality is the excess capital floating around the globe has anchored an inflationary trend that may be unstoppable without central banks taking interest rates to extremes. There was only one other period where I see similarities between what is taking place now and the recent past – 1970~2003.

Throughout that span of time, the U.S. Federal Reserve moved away from the Gold Standard and entered an extended period of money creation. This prompted a big increase in CPI and Inflation, leading to extreme FFR rates above 15% in 1982 to battle inflationary trends (see the charts below). CPI continued above 5% for another 15+ years after 1982 – finally bottoming in 2010.

What if the extended money printing that started after the 2007-08 Global Financial Crisis sparked another excess capital/inflation phase just like the 1970 to 2003 phase? What’s next?

Sticky Consumer Price Index Chart
Effective Federal Funds Rate Chart
M2 - Money Stocks chart

Excess Money Must Unwind Over Time To Prompt A New Growth Phase

My thinking is the 2000~2019 unwinding phase, prompted by the DOT COM bubble, 911 Attacks, and the eventual 2008-09 Global Financial Crisis, pushed the devaluation of assets/excess toward extreme lows. This prompted the U.S. Federal Reserve to adopt an extended easy money policy.

COVID-19 pushed those extremes beyond anyone’s expectations – driving asset prices and the stock market into a frenzy. As inflation trends seem unstoppable, the Fed may need to take aggressive actions to thwart the global destruction of capital, currencies, and economies and avoid a massive humanitarian crisis. Run-away inflation will harm billions of people who can’t afford to buy a slice of bread if it goes unchallenged.

The U.S. Federal Reserve may be forced to raise FFR rates above 6.5~10% very quickly to avoid rampant inflation’s destructive effects. And that means traders are mistakenly assuming the U.S. Federal Reserve will pivot to a softer stance.

Real Estate Will Be The Canary In The Mine If Fed Stays Aggressive

I believe Real Estate could see an aggressive unwinding in valuation and future expectations if the U.S. Fed continues to raise rates over the next 12+ months aggressively. Once mortgage rates reach 8% or higher, home buyers and traders are suddenly going to question, “where is this going?” and “where will it end?”.

The Fed may have to break a few things to battle inflation trends. This same thing happened in the early 1980s, and real asset growth didn’t start to accelerate until the last 1990s (amid the DOT COM Bubble).

Real Estate & Financials May Show The First Signs Of Stress

I believe IYR and XLF are excellent early warning ETFs for a sudden shift in consumer/economic activity related to future Fed rate decisions. Once the Fed moves away from expected rates/trends, the Real Estate and Financial sectors will begin to react to economic contractions and weakening consumer demand/defaults.

IYR - US Real Estate ETF Daily Chart

This potential trend is still very early in the longer-term cycle, but I believe traders are falsely focused on a possible U.S. Fed pivot, thinking the Fed will shift away from continued rate increases. I believe the U.S. Federal Reserve must raise rates above 5.5% FFR in order to start breaking inflationary trends. That means FFR rates need to rise 125% or more from current levels (250 bp+) – which may be higher.

HOW CAN WE HELP YOU LEARN TO INVEST CONSERVATIVELY?

At TheTechnicalTraders.com, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter, so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen

GOOG – Options Trader Tip Of The Week – Video

In the trader tip video below, Brian is having a look at GOOG (Google shares), which has recently completed its 21 for 1 stock split. This makes the options and the share much more accessible than they have been. Looking at the charts, we can also see GOOG trading in a pretty well-defined channel with a little bit of upward bias to it.

While we are a bit bullish on the share’s longer term, we want to set up a trade structure that can tolerate some up and down movement in GOOG. We do not necessarily want to rely on the shares having to go up substantially in price to make a profit on the trade.

TO LEARN MORE ABOUT THE GOOG trade setup – WATCH THE VIDEO

Subscribers: Please let us know what you would like to learn, and we will add it to the roster of our weekly Technical Trader Tips!

Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!

TO EXPLORE THE STRATEGIES THAT BRIAN USES, PLEASE VISIT Optionstradingsignals.com. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

TLT Bond ETF – Trader Tip Of The Week – Video

In the trader tip video below, Chris dives into the bond market charts. There’s an interesting opportunity starting to come about with the bond market. Since late 2018, most people have been fleeing from bonds, panicking about the massive selloff.

If we zoom in on the more recent bond price action, we can see that we’ve got a very significant bottoming type of formation starting to happen here. We are on a verge of a breakout that will be a fairly significant one. Overall, we could see bonds come back into favor, and a lot of people may be caught off guard.

TO LEARN MORE ABOUT THE TLT Bond ETF – WATCH THE VIDEO

Subscribers: Please let us know what you would like to learn, and we will add it to the roster of our weekly Technical Trader Tips!

Non-subscribers: Please enjoy these micro-lessons as a way to further your education and understanding of how a technical trader…well…trades!

TO EXPLORE THE STRATEGIES THAT CHRIS USES, PLEASE VISIT THE TECHNICAL TRADERS. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

US Fed – The Battle Against Excess Global Captial Continues

US Fed Is Battling Excess Global Capital – Which Is Creating Inflation

The US Fed continues to bring the big guns, raising rates another 75 bp (0.75%) on July 27, 2022. Even though they stated the economy is softening, current Inflation and CPI data suggest otherwise. The US Fed may be forced into another 75~100 bp rate increase next month if the US economy continues to show strong CPI and Inflation trends. There is only one other time in recent history like the current market environment – 1998~2004.

The DOT COM Bubble was unique in the sense that excess capital flowed into technology/internet companies’ hand-over-fist. It seemed all you had to do was register a URL, come up with some crazy business plan, and go talk to investors/VC. It was not a crisis like the 2008-09 Global Financial Crisis event. The DOT COM Bubble was a process of unwinding/consolidating excess capital away from a euphoric speculative phase in the markets.

I believe the current Pre & Post COVID market rallies are, again, very similar to the DOT COM rally phase – although this time, the focus is on foreign/global economies.

SPY - SPDR S&P 500 weekly chart

Fed May Have To Disrupt Global Currencies/Economies In Order To Tame US Inflation

There are some similarities to the 1998~2004 DOT COM bubble scenario in the current US markets. First is the rise in CPI and the huge increase in Inflation. CPI continued to rise throughout 1998~2008 – all through the DOC COM bubble disruption and up to the peak in 2007. The same type of thing is happening in CPI right now.

The reason why I believe the US Fed will continue to aggressively raise rates is because US Inflation is RED HOT, and the past few rate increases have done little to disrupt US economic trends.  Yes, housing, retail sales, and manufacturing are starting to see a shift in demand/activity. But the Fed is trapped in a very difficult situation where they must attempt to unwind the capital excesses throughout the world by adjusting rates and capacity here in the US.

That means the global markets will react to what the US Fed is doing and attempt to chase opportunities in a stronger US Dollar until the US Fed is able to break this cycle (see the change of direction in currencies near 2003 below).

US Dollar Currency Index chart

The Big Bang Event For Global Currencies Should Be Less Than 12 Months Away

I’m not going to try to predict when global currencies/economies will relent to the extreme pressures inching forward by the US Fed, Inflation, and other trends. But I will state that the GBP & JPY are already at a combined lowest ratio level compared to the US Dollar over the past 25+ years. I can only imagine the intense economic/valuation pressures that are stressing many foreign global economies/currencies as the US Dollar continues to strengthen. Debts, liabilities, ongoing expenditures, and essential services all need to continue for the people affected.

It may be just a matter of time before bigger cracks start to appear. We may see more uprisings and riots as we saw recently in Sri Lanka. We may see additional regional economic collapse events as at-risk nations strain to maintain their debts/liabilities. We’ll possibly see various aggressions ramp up as currency valuations get pushed toward the extremes.

Look at the US Dollar Rally in 1998~99 on the chart (above). Even though we had the DOT COM bubble burst in 1999~2000 and the 9/11 terrorist attacks in 2001, the US Dollar continue to strengthen until it broke down in late 2002 – nearly two years after the peak in the US stock markets.

If the US Dollar were to rally above 110 and potentially peak above 115, that would represent an additional +7% rally in the US Dollar – and possibly represent another -10%~-15% collapse in the JPY and GBP.

Let the currency wars begin. The Fed must continue to try to break US Inflation. To do that, it may have to break multiple foreign currency capital functions and push global capital functions from one extreme (speculation) to another (contraction).

LEARN FROM OUR TEAM OF SEASONED TRADERS

In today’s market environment, it’s imperative to assess our trading plans, portfolio holdings, and cash reserves. As professional technical traders, we always follow the price. At first glance, this seems very straightforward and simple. But emotions can interfere with a trader’s success when they buck the trend (price). Remember, our ego aside, protecting our hard-earned capital is essential to our survival and success.

Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:

  • A loss of 10% requires an 11% gain to recover.
  • A 50% loss requires a 100% gain to recover.
  • A 60% loss requires an even more daunting 150% gain to simply break even.

Recovery time also varies significantly depending upon the magnitude of the drawdown:

  • A 10% drawdown can typically be recovered in weeks to a few months.
  • A 50% drawdown may take many years to recover.

Depending on a trader’s age, they may not have the time to wait nor the patience for a market recovery. Successful traders know it’s critical to keep drawdowns with reason, as most have learned this principle the hard way.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist

Gold Support Level Reached, Is Now The Time To Buy? – Video

Chris sits down with Charlotte Mcleod from the Investing News Network to discuss the upcoming big move in gold and the stock market in general. Looking at the daily chart for gold, from a technical standpoint, it is down to a major support level. Gold is still in a downtrend but buying at a support level like this can be a great opportunity from a technical standpoint.

Long story short, looking at the quarterly chart, gold has been in a very strong rally since 2019. Though trading in an overall sideways pattern, the bearish stock market may keep pressure on gold and precious metals from breaking out and starting a run to the upside.

The quarterly chart for the US Dollar Index is flagging sideways in a bullish sign that is starting to break out. A rising US dollar adds more downward pressure on gold and silver. Based on the pattern, it could be over a year before the dollar reaches its peak in 2000. Gold and silver will have their day again, but for now, patience is what is needed.

Will a prolonged bear market actually benefit traders and investors? Understanding the four stages of the stock market, understanding the emotions and sentiment of the masses, and understanding the long cycles of the economy and stock market, will all help you gain a high-level view of where we may be going next.

TO LEARN MORE ABOUT How You Can Navigate The stock Market, WATCH THE VIDEO

TO EXPLORE THE Total ETF Portfolio, PLEASE VISIT US AT The Technical Traders. YOU’VE GOT MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

Fundamental Vs. Technical Analysis – What’s Your Style?

In investing and trading, we often hear debates on the merits of fundamental vs. technical analysis. Both aim to improve our probability of a profit.  Both methods have their usefulness when correctly applied.

They are not the same by any stretch, so it’s not a debate over one “apple” vs. another.  It’s a comparison of two completely different approaches, and the comparison is more of the “apples vs. oranges” variety.   

Trading vs. Investing

Before we get into the fundamental vs technical analysis, there are important distinctions to be made between investors and traders.  Investors are more long-term growth-oriented, while traders focus on immediate income or aggressive account growth.  Market participants tend to be focused on one approach or the other.  But many are a mix of both.

Investing and trading are different worlds, and it can be challenging to master either domain, much less both.  The key is to know what style is best for your timeframe, to what extent, and why.

Technicals vs. Fundamentals

The Technical Approach

Technicians are students of price patterns.  Technical analysis looks at the price movement of a security and uses these data to predict future price movements.  In general, the more liquid the product, the more reliable the price patterns on the chart.   A high-volume index product like the SPY ETF will more reliably chart investor and trader sentiment than a thinly traded penny stock.

Technicians focus on chart price action, often supplemented by choosing among literally thousands of “indicators” and combinations thereof.   I can’t tell you how often I’ve heard from hardcore nerd technicians something like, “This indicator (or set of indicators) works in all markets and all timeframes.”  

Uh, no.  I haven’t seen that yet in over 30 years of trading. Beware of too much chasing of a holy grail set of indicators.  That “forest” is vast, and you may never find your way out.  A relatively small group of indicators and patterns can serve technicians well.  The key is to know under which conditions to apply them and how.    

The Fundamental Approach

The fundamental approach looks at economic and financial factors that influence a business over the longer term.  Fundamentalists study financial statements, analysts’ reports and ratings, earnings reports, and forecasts.  

If a company has earnings “X” that are expected to grow at “Y%”, it is still up to market participants to decide what value to place on their assessment.  And they can be a moody bunch. 

Why I Lean Toward The Technicals

My opinion of a “correct” valuation is essentially meaningless.  But as a technician, I care about what the big money thinks and how they move their capital.  The price action from the chart is a reflection of what the big money thinks.  That’s our edge as technicians.  We’re following the money rather than our opinions on valuation.

Technicians are all about picking high-probability entries and exits.   As a technical trader, do I even care about fundamentals? Perhaps not. The charts can tell me what I need to know about what the big money is doing.  

Can technicians safely ignore fundamental analysis?  There’s a case to be made based on the assumption that everything currently known about fundamentals is baked-in into price.  Efficient market theory, as it were.  Technicians can be quite successful by focusing just on price action.  But chart patterns and indicators can and do unexpectedly fail.   So good risk management is always a requirement.

A hybrid approach for Buy-and-Hold?

 A herd mentality often drives markets.  One of the classic texts about market behavior is “Extraordinary Popular Delusions and the Madness of Crowds,” written by Charles Mackay and initially published in 1841.  It’s been commented on and analyzed ever since, and it seems not much has changed about human behavior.  History rarely repeats precisely, but it does tend to rhyme.

If you’re a long-term investor of the “buy and hold” variety, you could dismiss technical analysis.  But you’d be doing yourself a disservice.  Why?  Because the economy and markets are cyclical and there are times when it is best to move to the sidelines to avoid large drawdowns.  Fundamentals can be far out of sync with price action when fear and greed take over.  “The Market can be irrational for longer than you can be solvent.” 

Staying fully invested through major economic and price corrections can be costly to long-term results.  At other times, technical analysis can help buy-and-hold investors to see when a security is oversold, bottomed out, and may have a high-probability re-entry.   Again, good risk management is essential to protect our capital.

Fundamental vs. Technical analysis – summary

Which is better for you?  It depends not just on your time horizon but also on what suits your personality better.   I doubt I can do fundamental analysis on a public company and gain some insight that few others see.  That would make me a first-order participant with no edge vs. an army of institutional professionals.  As a technician, I’m a second-order participant.  My goal is simply to assess the price action as accurately as I can and make decisions accordingly.

HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY

At TheTechnicalTraders.com, my team and I can do these things:

  • Safely navigate the commodity and crude oil trend.
  • Reduce your FOMO and manage your emotions.
  • Have proven trading strategies for bull and bear markets.
  • Provide quality trades for investing conservatively.
  • Tell you when to take profits and exit trades.
  • Save you time with our research.
  • Proved above-average returns/growth over the long run.
  • Have consistent growth with low volatility/risks.
  • Make trading and investing safer, more profitable, and educational.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition. Click on the following link to learn how: www.TheTechnicalTraders.com.

Chris Vermeulen
Founder & Chief Market Strategist