The Technicals Vs The Fundamentals

Right now in the stock market we have as clear a divergence as I can recall between what the technicals are saying and what the fundamentals are.

As far as the technicals, the S&P is above its 200 DMA, above the much talked about 4100 level of resistance, we just had a Golden Cross in which the 50 DMA surges through the 200 DMA from below and then there is the January Barometer. The accretion of bullish technical indicators has caused the technicians to almost universally believe that the bear market is over and a new bull market beginning.

Those of us who take a more fundamental approach are left scratching our heads because the price action does not match what we’re seeing from corporate earnings. Apple (AAPL) reported a 5.5% decline in revenue in its 4Q22 – and that quarter had 14 weeks compared to 13 in the year ago period. Net Income fell 13.4%. While Google’s (GOOG/GOOGL) overall revenue was +1%, if you dig a little deeper revenue in its core advertising business was actually -4%. And while Meta (META) had a huge relief rally, the fundamentals were far from stellar with revenue -4.5% and EPS -52% compared to a year ago.

And so it all sets up for a showdown in coming weeks. My contention is that “the market is a voting machine in the short term, and a weighing machine in the long term” (Ben Graham). That is, price will follow the crowd in the short term but the crowd will follow fundamentals in the long term. So while the market may continue to rally in the days and weeks ahead, eventually this rally will peter out and we will look back at it as just another bear market rally. If you’re interested in this debate between technicians and fundamentalists, pay attention because we’re all about to learn something one way or another.