Thursday, August 13, 2009

Runaway Markets: Technical Analysis and Fundamentals

The stock market has been in a sustained rise since its March lows. Using 20-20 hindsight, people have said it was an inevitable bounce from scary lows, followed by a short squeeze that lasted longer than expected (due to the excessive fear and shorts in the market). Whatever the reasons, equities have been in a runaway market for almost six months now -- with the S&P rallying an amazing 50% in just five months!

We agree with many naysayers -- that our global economy isn't the greatest -- and that this might be a bear market rally. However, we are technical traders and our mentality is to "shoot first and ask questions later." Emotions can really move markets and cause them to overshoot -- often past where fundamentals might dictate. For the most part, our trading systems have kept us on the right side of the market (stocks, bonds, currencies, etc.) during this rally. We don't "fight the tape" -- and let the markets direct our actions. We believe that emotions and technical action move the market in the intermediate and short-term, but that fundamentals move the markets in the long-term.

We're wary of the direction that the world's economic fundamentals will eventually move the markets, but hope that our technical approach to the markets will keep us on a good path.

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