Why Technical Analysis Has Value In A Broken Market

Why Technical Analysis Has Value In A Broken Market

Could you ever imagine a week in the markets when earnings reports from technology titans, such as Microsoft Corporation (MSFT), Apple Inc (AAPL), Facebook, Inc. (FB) and Tesla Inc (TSLA) were secondary news? Or a Fed meeting? Welcome to bizarro world.

This week in the markets was just that way — and who knows how long it could continue? 

Fundamentals, Shmundmentals:

If the price action in the markets this week has proven anything, it is that fundamental analysis is dead for now

When the week concludes, the biggest winners are going to be GameStop Corp. (GME) and AMC Entertainment Holdings Inc.(AMC), and not companies that produced banner earnings reports that exceeded Wall Street’s expectations.

Instead, the big winners will be stocks being pumped and dumped on message boards.

Were some of these companies undervalued at the bargain prices they were trading at? Sure. On the other hand, are the heights these stocks reached this week representative of the companies' futures in the years to come? Who cares?

Technical Analysis Steps Up To The Plate

In a world where fundamental analysis is no longer a valid way to evaluate the value of companies, traders and investors may turn to turn technical analysis. In fact, a large portion of the investing world already incorporates technical analysis into its decisions.

When the other half of the formula is useless, this part of the formula becomes much more important.

For example, did the parabolic rally in shares of Bed, Bath and Beyond Inc. (BBBY)  stall out at $53.90 for no reason? Heck no. Back in early 2016, the issue had a pair of monthly highs at the $52.50 area. The bag holders in the issue — who were stuck with a huge losing issue for years in the greatest bull market of all-time — were getting bailed out.

Does this necessarily mean that the stock is not going back to that high or $100, $200 or $500? No. But what you have now is a whole new set of bag holders who are waiting to get out.  

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