Technical vs Marco and Fundamentals:

Macro analysis is helpful, but not able to determine turning points in markets. There are so many things an investor might consider that it is beyond human capacity to know which are most important and how they interact.

Fundamentals and valuation are better, but stocks can remain undervalued or overvalued for long periods of time.

To get closer to the actual event of a major market trend reversal, you need to use the calculator that rolls everything and everybody’s opinion into single factor.  That factor is the market itself.  The price and volume action of the stock market is the end-point resolution of all the facts, all the investors, and all of their money.

Sometimes the market acts so suddenly and dramatically that there is no warning (e.g. a flash crash), but most of the time there is a discernible build-up of evidence one way or the other that gives investors time to make adjustments if that is what they are inclined to do.

Unfortunately, what works shifts over time, so continued retesting of indicators is essential, but measurement of price and volume action is “where it’s at”.

Fundamentals are great for security selection, but not for gauging market trends.  Fundamentals and technical (chart) analysis are two separate but important parts of portfolio management.

Find a Method and Stick To It, But Adapt Method Over Time:

One key to using chart (“technical”) indicators is to find ones that work pretty well most of the time (none work all of the time), and to find ones that are not redundant to confirm one another.

Here is a method we are using at this time — noting that it didn’t work all that well in the 1980 through 1995 period as it has in the 1995 through 2014 period.  For 2015, we think a continuation of the utility of the 1995 through 2014 pattern of behavior is more likely than the 1980 through 1995 period.

The indicator we use is a combination of 4 factors:

The first two factors (price position relative to moving average and moving average leading edge direction) are necessary conditions for confirmation  of a trend reversal.  The second two factors (money flow index and stop & reverse index are used to provide confirmation or non-confirmation of the first two indicators triggering an alert).