Which is better: fundamental or technical analysis? This is a years-old debate, one that will likely continue. However, to me, like just about everything else on Wall Street, the answer doesn’t rest on whether one is better than the other, but rather on when it can be advantageous to use both. In this case, if you are looking at individual companies, fundamental analysis can give you an idea of the companies you want to target. Technical analysis can give you a good idea of when to buy. Therefore, I would argue that using both is optimal.
If you are an analyst looking at some sector and trying to pick out the best stocks or trying to put together a long/short portfolio, then I would also argue a combination of fundamental and technical is optimal. However, if you are an individual investor trying to put together a portfolio, this is not going to help you much. In this case I would argue that combining global macroeconomic analysis with technical is ideal. Global macroeconomic analysis sounds like a mouthful, and you may have been tempted to stop reading this when you saw it. I am not saying you need to predict what is going to go on globally, but I encourage you to be cognizant of what is going on so you know where to look. For example, when I first sat down to write this around the holidays, the market was debating about whether the Fed would be forced to pivot in 2023. You could try to predict that (good luck) or you could use that debate to inform what areas of the market you want to look at and apply technical analysis to. Normally, Treasuries and precious metals wouldn’t be areas of the market I was watching intently. However, whether the Fed pivots or not, these are going to be battleground asset classes that I should be watching for buy and sell signals. Here is a chart of TLT as of 12/23/22 (source: stockcharts.com):
Knowing that whether the Fed has to pivot or not, and knowing that we were going to have a bunch of data points—FOMC, CPI, PPI, PCE etc., this should be on your watch list, long or short. In early November you could have taken it long on a break of the 10 day SMA and 20 day EMA. You could have added along the way at different breaks and support areas. You could have then taken it short at a break of the 10 day SMA. I would currently be watching what happens as it approaches the 50 day SMA. So you are not trying to use what is going on to predict which way Treasuries are going to go; you are using what is going on to know that Treasuries should be on your watch list.
You can even take this a step further. Many Wall Street analysts are trying to tell you which direction the market will go in 2023 (again, good luck with that). Who knows where stocks will go, but you do know that the Fed is trying to slow the economy and from a chart of the S&P 500 you can see that not much is going on (source: stockcharts.com):
By knowing what is going on in global macroeconomics and looking at the technical, you know that you are probably better off being light in equity exposure. What that means depends on you, your risk tolerance, time horizon, etc.
Bottom line: in conducting research, try not to be swayed into a camp that touts one approach over another. Often, combining approaches can give a more complete picture, and being aware of the global macro environment can allow you to build a better targeted watch list so that you can more fully understand the general environment you are working in.
Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC. While many managers work within their respective silo when it comes to investment strategy, we look at all methodologies and market dynamics, using forward-looking due diligence to combine methodologies and timeframes to achieve the best results.
The views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal.
© 2023 Tuttle Capital Management LLC (TCM). TCM is a SEC-Registered Investment Adviser. All rights reserved.