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As you navigate the treacherous waters known as the stock market, it is helpful to remember that market action has different drivers depending on the time frame. In the short term, technical and sentiment indicators steal the show. But in the long term, market fundamentals always win.
 

Technicals rule the short-term

In our chat room here at Explosive Options, we constantly discuss technical conditions and sentiment. And we’re not the only ones. The discussion and translation of price action, volume trends, indicators, internals, and options flow create short-term volatility movements in the markets. Everyone has their own interpretation, and when traders choose a side, the markets are pulled back and forth.
 

Market fundamentals win in the long run

When you zoom out and look at the big picture, you will clearly see that market fundamentals win out in the end. I am a full-service technician, but I would be lying to you if I said fundamentals did not matter. I learned just how much they matter back in 2000 when I ignored the red flags flying. Companies were suffering from a fundamental breakdown in earnings, but I didn’t pay attention. That ignorance cost me (and many other traders and investors) a fortune.

During the financial crisis of 2008, a similar situation arose. Fundamental damage in the economy had started to ripple through about a year before the stock market suffered a steep drop. Markets recovered with help from the Federal Reserve’s easy money policy. After 2022’s stark reminder that stocks do go down and inflation can climb, the Fed enacted an extremely hawkish monetary policy. This is a positive for the economy’s fundamental picture, but it won’t be reflected for months or even years.

Zoom in to look at stock fundamentals, and you’ll see that they are the reason companies win or fail. Long-term investors look for value in a dollar’s worth of earnings. It is this analysis that writes the rules of long-term investing, and if the charts/technicals agree, then you have a powerful combination.

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