Which type of analysis would you prefer - Fundamental or Technical
I personally believe in technical analysis for a couple of reasons:
• The markets are driven by greed and fear, and not by supply and demand or anything like this.
An economic report itself is meaningless: It's the traders’ reaction to the report that moves the market.
• Price data is more “objective”. You can interpret financial data and economic reports any way you want, but support levels are support levels, and a weekly high is a weekly high. It’s easier to interpret hard facts than financial statements, because many times they might be misleading.
• It’s easier and faster to learn technical analysis. You can learn the basics by reading a couple of book, while you need to study micro- and macro-economics to interpret economic reports. And even then you might be fooled by the market.
• Here’s an example that just happened a few days ago:
The "Pending Home Sales" were released and were much worse than expected: Instead of an expected 0.7% decline we saw a whopping 2.6% decline. Yet the major stock indices went up when the news hit the wires.
Wouldn't you think that bad news drives the market down?
Well, the traders reason out that: Since the data came in much worse than expected, the Fed is more likely to lower interest rates and that's good overall, so the market went up. At least temporarily. Then "renewed credit concerns" sent the market down again.
But by just looking at the economic report the market should have moved down, yet the trader’s reaction to this report moved the market up.
For these reasons I recommend that you take a close look at technical analysis. Keep in mind that big trading companies like Goldman Sachs are employing analysts with PhDs in economics, and you shouldn’t expect to be smarter than them.