I am not saying they play no role at all... I am suggesting that the role they play is greatly overstated in the press. And so distracting to us that we can easily miss what the charts and technicals are screaming at us.
One example is oil. A week or two ago I did a calculation comparing the price of crude oil futures with the price of QQQQ (both on a closing basis). I looked at about 6 or 8 weeks worth of prices. Conventional wisdom would say that there would be an inverse correlation, and a pretty high correlation----as oil goes up, stocks go down. Instead, what I found was surprising: not only was there no inverse relationship, there was actually the opposite relationship. There was a weak but positive correlation.
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After that, I got to thinking about the various economic reports and FOMC data and such. The question I asked myself was: "When was the last time we saw ANY one piece of news alter the course of the market or cause a SUSTAINED move in any particular direction?" My answer, totally gut level, is that this does not happen. Instead, we see a very temporary effect, and not a strong one usually.
A couple of recent examples: remember a few weeks back when Greenspan made a speech confirming that the FOMC had no intention of changing its "measured pace" policy, and right after that the market rallied like crazy into the close? And remember the talking heads saying the "reason" for the rally was that "the market breathed a collective sigh of relief"? I posted that I considered that ludicrous, and said that I thought the rally would end very quickly, and so it did; the very next session the market tanked. So that certainly had no lasting effect on market behavior, in fact the effect only lasted two hours.
Another example occurred today. Early this morning the press was crowing about the highly encouraging jobs report, and how that news would significantly alter the markets. And so it did. For about 4 hours. The market gapped up, but the positive effects on the market lasted less than 3 hours; the market traded down from the opening bell to erase all the gains on the day by lunchtime:
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I realize what I am suggesting is heretical and might make some uncomfortable. But these are just two examples, and I have seen this sort of thing again and again and again. I can only conclude it is the rule, not the exception: so-called fundamental news has little lasting impact on the market.
Instead, the market quickly digests these little bits with a bit of volatility one way or another (sometimes both ways, as we saw last Tuesday after the FOMC announcement). Then, the market reverts back to what it was doing in the first place (i.e., the basic underlying trends).
If I am correct, this might at first seem very disconcerting. But I don't think so. Instead, it is to me a vindication for the value of careful analyses of charts, technicals, and trends. It tells me that the news-du-jour can be largely ignored, because the charts and technicals are rarely or never altered significantly except on a very short-term basis (a day or two or three at the most).
So, for example: once the market put in a double top in December, after showing bearish divergence in the technicals for most of the month, that's really all you needed to know for the next 4 or 5 months.
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Once you saw the second black candle in January that confirmed the topping formation, you could have concluded that the market was moving into a medium-term downtrend, off a clear reversal candle and topping formation and evidence of exhaustion and deteriorating technicals (all of which I posted about in December and January), and simply stop reading the news. All subsequent news and economic reports and the oil gyrations did nothing to alter the fact that a trend change had occurred, and had a very predictable endpoint, as we both posted about several months ago, and we were proven right.
So we could have just analyzed things back in January, and stopped looking at all the news. I admit I did not see this clearly enough, maybe in part because of distractions about oil and the FOMC and sighs of relief and so forth. I didn't sufficiently see the forest because I was examining tree bark too closely.
But just look at this chart carefully, I think it is one hell of a powerful argument for charts/TA. All we had to do was note that OBV had turned down and made a lower peak, Williams' had turned down (both in early December), and that was followed by a clear stochastic sell signal from extreme overbought levels----the charts and technicals were screaming sell, even as most people were bullishly crowing about the post-election rally and the Santa Claus rally and the upcoming good earnings and the good jobs situation and the FOMC etc. etc. etc. etc. ad nauseum.
But even though we didn't sufficiently appreciate things then, we can do so now. Just forget about the news-noise for a minute, and look at this, this is about as dramatic as it gets:
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I don't care what the news is today, or next week, or next month. The charts tell a clear story, just as they did in December, if only we had been paying better attention:
This market has put in a bottom, is now extremely oversold, has technical buy signals in place; the medium-term correction is over, and we will now resume the long-term uptrend. This will occur no matter what oil or Greenspan or jobs data. So we don't even need to pay attention to that stuff.
So beg, borrow, and steal every penny you can and put every last cent of it into this market on the long side. We might not see a lot more opportunities like this in the coming years.
Now, I say the correction is over, but a bit of disclaimer: I still expect a retracement to lower support levels and a successful test there. And I believe what we will see is more of what we have already seen: a ton of buyers, and the charts will show that in the form of accumulation of pools of supportive volume (because this activity will be due to accumulation by the real forces that move this and every other market: the big participants. It is clear that they have, for whatever reason----FOMC, oil, collective sighs of relief, jobs data, the alignment of the planets---decided to step in and invest, and invest heavily. And THAT will be the force powering a sustained movement in the market, nothing else.
The price of oil, the FOMC, etc. will not alter things significantly, except in the very short term. And when there is news counter to what conventional wisdom expects (e.g., oil spikes to all time highs but the market rallies anyway), we will again see the usual: talking heads making fools of themselves and anybody who actually listens to them coming up with sometimes laughable "explanations", when in fact the things they are focused on are largely irrelevant.
But I never really answered your question (what are the major fundamental factors that really do play a role ?).
My answer is that I am not sure. I suspect that decisions to make huge capital investments in stocks (or any other market) are probably the end result of highly sophisticated and highly complex quantitative analyses of risk analyses vs. potential for reward, and are largely based on current valuations and projections of these going forward, again in a quantitative fashion.
I say this for several reasons.... I have lately been delving into some of the workings of hedge funds, and the services they use that are relevant to this. It is clear to me that I have lots to learn about these rather murky goings-on that few seem to be aware of. Just do a few searches for "hedge funds" and related keywords and you'll see what I mean: here we have a multi-trillion dollar industry, and there is astonishingly little facts out there in plain view regarding who they are, what they are, what they are doing and how and why. This is just astounding and incomprehensible---here you have unimaginably huge forces with trend-making potential, and instead of focusing on these and intensely analyzing what they are up to, the press wants to dissect 7 ways from Sunday the latest economic report or sneeze from Greenspan, which will be all but forgotten in two weeks with the NEXT economic report or sneeze !!!
This alone is very telling, IMHO. Certainly you won't see talking heads discussing these things, but given the huge potential for a multi-trillion dollar investment sector to move any market, you would think that's all they would want to talk about. But they don't, most likely for 2 reasons: first, they don't know anything about it, and second, people (except me and a few other wackos) are quite content to listen to their daily drivel and bandy it about back and forth as if it actually had any fundamental significance.
Okay... well, bet you're sorry you asked by now!
Anyhow, that's my story, and I even fixed all the dyslexci tyops too.
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