Technical Analysis versus Fundamental Analysis

Despite the fact that technicians and fundamentalists are often at odds with one another, there are ways they can work together for mutual benefit. Market analysis can be approached from either direction. While I believe that technical factors do lead the known fundamentals, I also believe that any important market move must be caused by underlying fundamental factors. Therefore, it simply makes sense for a technician to have some awareness of the fundamental condition of a market. If nothing else, the technician can inquire from his or her fundamental counterpart as to what would have to happen fundamentally to justify a significant market move identified on a price chart. In addition, seeing how the market reacts to fundamental news can be used as an excellent technical indication.

The fundamental analyst can use technical factors to confirm an analysis or as an alert that something important may be happening. The fundamentalist can consult a price chart or use a computer trend-following system as a filter to prevent him or her from assuming a position opposite an existing trend. Some unusual action on a price chart can act as an alert for the fundamental analyst and cause him or her to examine the fundamental situation a bit closer. During my years in the technical analysis department of a major brokerage firm, I often approached our fundamental department to discuss some market move that seemed imminent on the price charts. I often received responses like "that can never happen" or "no way." Very often, that same person was scrambling a couple of weeks later to find fundamental reasons to explain a sudden and "unexpected" market move. There's obviously room for much more coordination and cooperation in this area.