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Stock Market Insights: Balancing Subjective vs Technical analysis

Stock Market Insights: Balancing Subjective vs Technical analysis

June 15, 2023

In sports there are the subjective analysts and then those that take a technical approach to evaluate a team’s potential.  On a subjective basis, the analyst would focus on attitude, team spirit, and managers ability to coach the team.  The technical analyst focus on the facts.  This would include stats of the teams and players and team scores especially against upcoming opponents.  Both add value to evaluating the potential outcome of the next game and for reasons unrelated to their analysis, they both can be proven wrong.  Based on analyst’s reports, one team is determined to be the “underdog” and projections of the potential final score.  “Upsets” are simply an outcome that defies expectations of the analysts, commentators and majority opinion of sports fans.

No better example of an “upset” that defied everyone’s expectation was the November 30, 2013 match-up between the dominant Alabama football team lead by the relentless Coach Nick Saban against their rival and smaller in all aspects, Auburn University lead by Gus Malzhan.  The head coaches and their teams played an excellent game and to the surprise of all were tied 28-28 going into the last seconds of the game.  Nick Saban’s Alabama team was in the driver seat setting up to kick a game-winning 57-yard field goal by their back-up kicker Adam Griffith.  However, unbeknownst to all except Coach Malzahn, Nick Saban had made a critical miscalculation.  Adam Griffith had never kicked a 57-yard field goal and apparently the thinking by Coach Saban is if he makes it the game is won and if not the teams go into overtime.  Coach Malzahn viewed the situation entirely differently and put in his fastest players on the field instead of his normal heavy-set special teams. The kick fell predictably short of the goalposts, and wide-receiver Chris Davis, now punt returner, caught the ball and, with his fleet-footed defensive team, outmaneuvered Alabama’s defenders, and sprints 109 yards down the field for the game-winning touchdown. As the play started, Coach Saban, recognizing his error as Malzahn’s team lined up on the field, can be seen mouthing the words, “I knew it,” as Davis runs past him and the rest of the Alabama team.

The stock market has a similar set of commentators and analysts broadcasting, writing, or posting 24/7.  The subjective market analyst would focus on topics that include investor sentiment, CEO’s comments on their company’s projections, and consumer and investor sentiment.  In essence trying to define the “feelings” towards the stock market and economy.  The technical analyst simply focus on the actual data of the market.  This would include stock price changes, corporate earnings, consumer spending, and moving averages.  Most commentators I find and especially on TV (e.g. CNBC, Fox News, Bloomberg) focus on subjective matter where there is more room for speculation and opinions.

In this Weekly Brief, we have focused on both styles of analysis as both can provide insight into the potential future direction of the stock market and economy.  Today we will focus on one key technical statistic that has proven over the years to be reliable in evaluating the status of the market.  This will be the moving averages of the major indices.

The first index we will look at is the S&P 500.  Below One-Year chart illustrates the S&P 500 index (purple line) compared to its 20 Day Moving Average (DMA) in orange, 50 DMA in blue, and 200 DMA in green. 

The chart illustrates that the S&P 500 index up trend and daily gains are currently gaining faster than its past 20, 50, and 200 Day Moving Averages (DMA).  Also, and very positive, is that shortest term moving averages are also increasing faster than the longer term moving averages which indicates that the current trend is picking up speed and increasing faster than it did 50 or 200 days ago. 

Apparently institutional investors who have the most accurate and current data, have lighten their concerns about inflation, Federal Reserve rate hike policy, US government debt ceiling, and recession.

Looking back three years, the S&P 500 still has a way to go to rally above its previous January 3, 2022 all-time high level.

Investors in tech are even more bullish on the market and economy.  The NASDAQ index, primarily technology companies, is having a stronger rebound this year after last year’s worse than all major indices decline.

Like the S&P 500, the NASDAQ index is also below its January 2022 high.


It is good news that it appears for now that the US economy is not heading into a recession as consistently predicted all of 2022.  Although the credit and commercial real estate sectors are among several sectors deeply impacted by the Federal Reserve rate hike policy, the overall economy appears to be stable.  The primary stability of the economy is due to a strong consumer sector with more people working in the history of this country and millions having locked in low fixed rate mortgage interest rates that locks in predictable housing costs.

Consumer spending represents 66% of the US economy commerce and continues to be the driver of economic growth.  The stock market’s recent rally may prompt a typical summer weakness that could lead into a strong finish during the fourth quarter.  The stock market performance in the fourth quarter is larger influenced by holiday sale predictions and a strong consumer sentiment and spending will bring comfort to investors.   

Give us a call if you have any questions or comments about this Weekly Brief.  Also, we welcome the opportunity to answer any questions you may have about your financial planning or investment accounts.  We welcome the opportunity to assist you and your family.