Proof Technical Analysis is Superior To Fundamental Analysis

Proof Technical Analysis is Superior To Fundamental Analysis

On January 11, 2010, In Technical Analysis, by Steve Warshaw

You can quote me on this:

Fundamental investing methods do not work in today’s stock market

Does that sound crazy to you? I don’t mean to offend anyone, but that facts are the facts. The stock market is now entering its 10 month of a bullish recovery from the financial melt down and subsequent market crash. But the real question is, why is the market recovering?

Seriously, what’s changed in the US and world economies over the past year that supports such a huge run in the stock market? Are earnings expanding again? Nope. Is the financial system fixed yet? Well, banks are still failing, small business loans are still almost impossible to get, homes are still foreclosing at record levels, debut to income levels are still near all time highs, the Fed is loaning crooked Wall Street bankers free money, and printing new dollars as fast as the can get paper.

Honestly though, one could still find reason for the economy and the stock market to recover, despite al of these short comings; they could easily overlook record foreclosures and sinking home values, and even ignore the obvious inflation that’s locked and ready to fire….. If only Americans were going back to work.

This past Friday, I figured the jobs report would absolutely move the markets, positive or negative, in a huge way. After finally seeing the first month of job growth in November, the December employment data was certain to clarify several points; was the November job growth due to temporary (seasonal) job creating, or was it due to real growth in the economy. This report was supposed to be “the report” that proved our economy was actually growing.

Investors has clearly been expecting a strong report on employment, or so we thought, as based upon the strong rally seen since the first trading session of 2010. So let’s take a look at the numbers before I prove my hypothosis that technical analysis is superior to fundamental analysis for investing in today’s markets.

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs.

Uh oh, 85,000 jobs lost, and really it’s worse than that because the number is actually inflated by my temporary services. YIKES! Add to that the percentage of long term unemployed continues to rise, reaching 6.1 million Americans. Further, the civilian labor force participation rate fell to 64.6%, and that the employment-population ratio declined to 58.2 percent!

To quote Larry Levin:

“About 2.5 million persons were marginally attached to the labor force in December, an increase of 578,000 from a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Are these folks WORKING? No, they are UNEMPLOYED by every definition known to man but one – the US governments. Why is it like this – counted this way? Because it is politically expedient; truth be damned.”

All in all, the real unemployment number from the government itself rose to 17.3%, which is horrible news…

And yet, the market continued to rally.

I wrote a post on upsidetrader.com where Joe was speaking about the jobless recovery, and I made the statement,
“Thank goodness for technical trading. If anybody actually cared about numbers anymore, this market would be in the toilet.” Joe agreed!

What you need in today’s market is a technical based system of trading. Take a look at the trades below, performed against three popular exchange traded funds. Each of these trades was placed using a trading system I developed which utilizes Marketclub Monthly trade triangles. They are proof that technical analysis really does work!

Enter			Exit
Symbol	Date	Price	Direction	Date	Price	Profit
XLF	6/7/2002	25.23	short	5/3/2003	23.7	1.53
	5/3/2006	23.7	long	7/24/2007	35.12	11.42
	7/24/2007	35.12	short	8/6/2009	13.5	21.62

					Total	34.57
					Buy & Hold	-9.99

Enter			Exit
Symbol	Date	Price	Direction	Date	Price	Profit
XLE	3/4/2004	44.75	long	9/1/2006	54.45	9.7
	9/1/2009	54.45	short	11/29/2006	59.88	-5.43
	11/29/206	59.88	long	7/24/2008	73.35	15.47
	7/24/2009	73.35	short	11/12/2009	56.84	16.51

					Total	36.35
					Buy & Hold	15.46