Signals from the Market: Putting It All Together

Over the past four weeks, we’ve explored the three pillars of market analysis: technical, fundamental and sentiment. Fundamental analysis tells us what is happening inside the business. Technical analysis tells us what is happening to the price. Sentiment tells us what investors think and feel about both. On their own, each provides useful information. But when the three start telling the same story, things get interesting.

Why pay attention to all three market signals?

Markets rarely hand investors a perfect opportunity on a silver platter.

Fundamentals might be improving while the share price is still falling. Sentiment might turn positive before the financial results show any improvement. A technical setup might appear bullish while investors remain sceptical about the company’s future.

This is why combining the three can be so powerful.

When different signals begin pointing in the same direction, investors can identify what we commonly call a high-probability setup. It doesn’t guarantee success. Nothing in investing does. Instead, it means there are multiple pieces of evidence supporting the same conclusion.

And the signals don’t necessarily arrive together.

Fundamental improvements can come first. Sentiment can then shift as investors recognise those improvements. Eventually, that change in opinion has to become action. Investors buy. Other investors notice. More buyers enter. The price rises.

And suddenly, what was happening off the chart is visible on the chart.

Two of the biggest technology stories of recent years show this process particularly well.

How did Nvidia show all three market signals coming together?

Nvidia is a great example of the three pillars aligning before a major move.

Fundamentally, the business was continuing to improve. Data-centre revenue had grown strongly, driven by increasing demand for Nvidia’s chips and AI capabilities.

Sentiment was beginning to follow. In April 2022, New Street Research upgraded Nvidia from Neutral to Buy, arguing that the weakness had created an attractive opportunity. Later that year, Summit Insights also upgraded the stock from Hold to Buy.

And while all of this was happening, the chart was quietly telling its own story.

Throughout 2022, Nvidia was forming a large inverse head-and-shoulders pattern, with the share price eventually finding a low around $108, or roughly $10.80 on today’s split-adjusted basis.

The improving fundamentals and sentiment were being reflected in the chart as investors gradually changed their view and started buying again.

What was happening off the chart was appearing on the chart.

When the inverse head-and-shoulders eventually broke higher, the move began to snowball. More investors saw the breakout, more buyers entered, and the improving business, improving sentiment and improving technical picture reinforced one another.

Nvidia went from roughly $10.80 at the formation of the pattern to around $220 today (share split accounted for).

The point isn’t that the pattern predicted Nvidia’s future. It couldn’t. The opportunity came from seeing multiple signals telling the same story at the same time.

How did Meta show the three market signals coming together?

Meta provides another good example of the three pillars lining up.

Fundamentally, the company was under serious pressure throughout 2022. Revenue was declining, costs were rising, and investors were

increasingly frustrated by the billions being spent on the metaverse. The share price collapsed from above $300 to below $100.

By the end of the year, however, the story was beginning to change. Meta was cutting costs aggressively, reducing its workforce and shifting management’s focus towards efficiency and profitability.

Sentiment began turning with it. In December 2022, JPMorgan upgraded Meta from Neutral to Overweight, raising its price target from $115 to $150. The upgrade pointed to improving cost controls, lower capital expenditure and better prospects for Reels monetisation.

Then the chart started telling the same story.

After the major gap down in 2022, Meta remained in a clear downtrend, with a descending trendline repeatedly keeping the price under pressure. At the beginning of 2023, that trendline finally broke.

The breakout didn’t cause the fundamentals or sentiment to improve. Instead, it showed that the market was beginning to reflect those changes.

What was happening off the chart was appearing on the chart.

The technical breakout provided a clear signal that the downtrend could be ending and that a new uptrend could be developing. And that’s exactly what followed.

The opportunity wasn’t about one signal predicting the future. It was about fundamentals, sentiment and price action beginning to tell the same story.

That’s the real power of combining the three.

Fundamental analysis can help us understand what a business may be worth. Sentiment can help us understand what investors expect it to be worth. Technical analysis shows us what investors are actually doing with their money.

None can predict the future with certainty.

But when all three begin pointing in the same direction, the probability of a meaningful opportunity can increase significantly.

And that brings us to the end of our journey through the signals from the stock market.

We now understand the three pillars of investment analysis, the signals each provides, and, most importantly, how they can work together. The real skill isn’t choosing between fundamental, technical or sentiment analysis. It is recognising what each is telling you, understanding when those signals disagree, and spotting the moments when they all begin telling the same story.

And that’s where a high-probability setups begin.