There are two basic approaches to trading: fundamental and technical. In the long run, most traders agree that fundamentals will determine price.

However, as Lord John Maynard Keynes, renowned British economist, famously wrote in 1923: “In the long run, we are all dead.”

Keynes’s point was that focusing solely on the long-term perspective can be misguided because it ignores immediate issues that need to be addressed. These short-term factors can exert significant effects on people’s lives, investments and the economy.

That’s why my preferred methodology is a hybrid approach, combining the long-term underlying fundamentals with short-term technical indicators.

In this game called trading, if you can correctly determine the trend, you will make money. Even if your timing is off, if you’re correct on the trend, many times the trend will show up to rescue you. If you’re wrong on the trend, even if your short-term timing is superb, you’ll have trouble making money.

Just as it’s easier to swim with the tide than against it, I’ve found that it’s easier to follow the trend than to trade against it (which is what you’re doing when trying to pick a top or bottom). The reason: There’s only one top and only one bottom and your timing must be nearly perfect when top- or bottom-picking.

The technical and fundamental indicators currently tell us that the market rally has plenty of juice left. Let’s take a closer look.

Momentum versus timing…

One of the cardinal rules in investing is to avoid trying to time the market. Investors who attempt to pick the top risk missing out on substantial gains, while those trying to identify the bottom may end up holding depreciating assets longer than necessary. Instead, following the trend allows investors to capitalize on the market’s momentum, leveraging the collective wisdom of market participants.

Technical analysis is a critical tool for understanding market trends and momentum. Several technical indicators suggest that the stock market’s rally still enjoys mojo.

The use of moving averages, particularly the 50- and 200-day moving averages, can provide insights into the market’s overall trend. When shorter-term moving averages are above longer-term ones, it indicates a bullish trend. Currently, many major indices have their 50-day moving averages well above their 200-day moving averages, signaling strong upward momentum.

The following chart of the benchmark SPDR S&P 500 ETF (SPY) tells a story of powerful momentum:

Another technical indicator, the Relative Strength Index (RSI), measures the magnitude of recent price changes to evaluate overbought or oversold conditions.

An RSI above 70 typically indicates overbought conditions, while below 30 suggests oversold conditions. Despite recent highs, the RSI for major indices is not excessively overbought, suggesting there is room for further gains.

Increased trading volume during price advances indicates strong investor confidence in the rally. Recently, trading volumes have surged alongside rising stock prices, reinforcing the notion that the rally is supported by broad-based participation rather than speculative trading.

The fundamental indicators…

Fundamental analysis evaluates the intrinsic value of stocks based on economic indicators and corporate performance. Several fundamental factors are driving the current rally.

Second-quarter corporate earnings are projected to be robust, with many companies reporting higher-than-expected profits. According to research firm FactSet, the S&P 500 is projected to rack up year-over-year earnings growth for Q2 of 8.8%.

This earnings strength reflects a healthy economic environment, improved consumer spending, and operational efficiencies implemented by companies during challenging times. Strong earnings growth often translates into higher stock prices as investors gain confidence in the market’s profitability.

The global economy is showing signs of recovery from the pandemic-induced downturn. Key economic indicators in the U.S. and other developing countries, such as gross domestic product (GDP) growth, employment rates, and consumer confidence, are improving. What’s more, central banks around the world are shifting toward a more accommodative monetary stance.

Given the strong technical and fundamental indicators supporting the current rally, you should consider strategies that align with the prevailing trend.

Rather than attempting to time the market, staying invested in a diversified portfolio can help capture ongoing gains. Diversification reduces risk while allowing exposure to various sectors benefiting from the economic recovery.

Periodic portfolio rebalancing ensures that investments remain aligned with long-term goals while taking advantage of current market conditions. Rebalancing involves adjusting the allocation of assets to maintain the desired risk-reward profile.

I suggest you increase your exposure to the sectors that were laggards in 2023, as they benefit from sector rotation in the second half of 2024. These sectors include industrials, utilities, consumer discretionary, and real estate.

Staying the course and leveraging the collective wisdom of market participants is a winning strategy. Swim with the ride, not against it.

That said, sector rotation hit a speed bump on Wednesday, as chipmakers and Silicon Valley behemoths slumped amid fears of trade crackdowns. The main U.S. equity indices closed mostly lower as follows:

• DJIA: +0.59%
• S&P 500: -1.39%
• NASDAQ: -2.77%
• Russell 2000: -1.06%

The good news is that the benchmark 30-year U.S. Treasury yield continued its slide, falling 0.34% to settle at 4.35%, a signal that Wall Street still expects monetary easing later this year.

Read This Story: Artificial Intelligence: Resistance Is Futile

Editor’s Note: I just explained the importance of tapping into long-term trends. One such trend is the rise of artificial intelligence (AI). But when it comes to AI, you need to be wary of high valuations and media hype.

Perhaps you’re eyeing the Big Tech stalwarts that are making massive investments in AI. Well, they’re obvious plays on the trend and they’re trading at rich valuations.

How can you safely invest in AI? Consider the advice of my colleague Robert Rapier.

Robert Rapier is an income investing legend. He’s the chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

Robert has found a better way to make money from the AI super-boom, thanks to a group of under-the-radar tech plays. Robert is locked in on AI right now because of the incredible income opportunities it has created. To learn more, click here.

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John Persinos is the editorial director of Investing Daily.

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