The Federal Reserve’s dovish intimations this week have unleashed Wall Street’s animal spirits, pushing the major U.S. stock market indices to record highs. It begs the question: how durable is this equity rally? Let’s turn to key technical and fundamental indicators for guidance.

Technical analysis is used to forecast future price movements based on historical price and volume data. It operates on the premise that past market trends can provide insights into future price movements, and that these patterns can be identified and exploited to make informed trading decisions.

Unlike fundamental analysis, which focuses on examining a company’s financial statements, earnings, and economic indicators, technical analysis relies solely on the study of price and volume data.

At the core of technical trading is the use of charts to visualize price movements over time. Practitioners of technical analysis, often referred to as chartists, analyze these charts to identify recurring patterns and trends that can help predict future prices.

Chartists believe that market psychology, reflected in price movements, tends to repeat itself, and therefore, by studying historical patterns, they can anticipate future market behavior.

Some investors place great validity in technical indicators. Others dismiss technical trading as voodoo. I think a glib dismissal of technical trading is unfair, but I see the point of that criticism if it’s only charts that an investor relies on. I prefer taking a hybrid approach that combines technical and fundamental data.

I’m also mindful of the fact that algorithms increasingly dominate trading on Wall Street, especially as artificial intelligence becomes more pervasive. While technical indicators provide valuable insights into market trends and potential entry/exit points, algorithms leverage this information to automate trading decisions and execute trades more efficiently in the stock market.

There’s an old saying on Wall Street: Don’t fight the Fed. I suggest a corollary: Don’t fight the bots.

Below, I examine what both schools of thought, technical and fundamental, can teach us today. First, let’s step into the world where charts are scrutinized like ancient scrolls.

The technical side…

Moving averages are key technical indicators. A moving average helps smooth out price data by creating a constantly updated average price. A rising moving average indicates that the security or index is in an uptrend, while a declining moving average indicates a downtrend. The shorter the moving average, the sooner you’ll see an actual change in the market.

The following charts depict data as of market close March 21.

The 10-Year U.S. Treasury Yield (TNX) has slipped in recent days to hover at 4.27%, closer to its 20-, 50- and 200-day moving averages:

The easing of the benchmark TNX is a positive trend for stocks; It reflects the consensus that the Federal Reserve will maintain an accommodative stance this year and interest rates are on their way down. When yields go down, equities often go up (and vice versa).

The CBOE Volatility Index (VIX), aka “fear index,” has been falling and sits below all three of its major moving averages, indicating a decline of stress and uncertainty in the markets:

The VIX hovers below 13, which is a hopeful sign. Wall Street is regaining the confidence that it temporarily lost when inflation readings last week came in hotter than expected.

The SPDR S&P 500 ETF Trust (SPY) has soared well past all three of its major moving averages, indicating an acceleration of momentum:

The New York Stock Exchange Advance/Decline line (NYAD) also has been rising, indicating greater breadth:

The NYAD shows the number of advancing stocks minus the number of declining stocks. When major indices such as the S&P 500 are rising, a rising NYAD confirms the uptrend (and, of course, vice versa).

The fundamental side…

Meanwhile, the U.S. economy and corporate earnings are showing surprising resilience.

At the conclusion of its two-day policy meeting Wednesday, the Federal Reserve boosted its outlook for U.S. gross domestic product (GDP) growth in 2024 from 1.4% to 2.1%.

According to FactSet’s latest projections, released March 21, the estimated year-over-year earnings growth rate for S&P 500 companies for the first quarter of 2024 is a healthy 3.4%. That’s not a blockbuster number, but neither is it an earnings recession.

If 3.4% turns out to be the actual growth rate for Q1, it will mark the third-straight quarter of year-over-year earnings growth for the index.

As I’ve just explained, the technical and fundamental indicators tell us that the long-term prognosis for stocks is positive. But there’s a caveat. Stocks have gotten pricey and they’re vulnerable to bad news (such as, say, a resurgence of inflation that drives up the TNX).

Price-to-earnings ratios and other valuation gauges are generally regarded as fundamental indicators, used to assess the intrinsic value of stocks. These valuations have gotten stretched. However, if we do get a pullback over the near term, I suggest using it as a chance to buy the stocks on your “wish list” at a better price.

Read This Story: Understanding Crypto, Part One: What Makes Bitcoin Tick?

I also suggest that you increase your exposure to cryptocurrency. I expect the crypto market to soar in 2024.

Consider this fact: the “blue chip” of crypto, Bitcoin (BTC), gained 156% in 2023. This year, BTC and the broader crypto realm are building on those gains, driven by the introduction of Bitcoin exchange-traded funds (ETFs) and the “halving” event expected in April.

Every portfolio should have some sort of exposure to crypto. But you need to be informed, to make the right choices. Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: