Relationship Between Technical and Fundamental
Do fundamental events encourage technical analysis or movement or vice versa? In the short run, strong fundamentals do not always show strong technical patterns or vice versa. Often, the technically can continue to follow a strong or weak pattern when the fundamentals are at a trend reversal level, which can cause them to be out of sync. In addition, technicality may be out of sync with fundamentals when there is a surprise in the stock market, both positive and negative.
Stocks tend to follow the technical in the short term unless there is an unexpected surprise. For example, there are times when stocks start moving before disclosure of new material to the public. The absence of insider trading or incorrect disclosure by not following the rules of authority, technical analysts say that you can respond in real time to stock prices and do not need to wait for the next reporting date or disclosure of the news, since the chart has interpreted market sentiment, so following the graph will result in higher profits.
Technical analysts believe that stocks will keep moving even without disclosure because suppliers, competitors and employees, and all their family and friends, invest in the company and without the need for inside information, understand how the company is doing well. This buying and selling activity determines stock charts and patterns, and reflects stock behavior in real-time.
There are times when markets are struck by new disclosures, technical charts may fail, at least initially. To then review the fundamentals can lead to long-term benefits by utilizing short-term mispricing when a shock causes the market to over-react. News is temporary and may have a positive or negative impact on stock fundamentals, so following the fundamentals after the emergence of a surprise may be more cautious. After that, using technical analysis may provide an opportunity to exploit a correction or rebound after the news is absorbed. Therefore, although both are out of sync in the short run, technical and fundamental must be in sync over the long term. That is because in the long run, the fundamentals must win and move the technical.