FUNDAMENTAL ANALYSIS

ock analysis:
Fundamental analysis is a method of evaluating securities by
attempting to measure the intrinsic value of a stock.
Fundamental analysts study everything from the overall
economy and industry conditions to the financial condition and
management of companies.
Technical analysis is the evaluation of securities by means of
studying statistics generated by market activity, such as
past prices and volume. Technical analysts do not attempt to
measure a security's intrinsic value but instead use stock charts
to identify patterns and trends that may suggest what a stock will
do in the future.
In the world of stock analysis, fundamental and technical analysis are
on completely opposite sides of the
spectrum. Earnings, expenses, assets and liabilities are all important
characteristics to fundamental analysts, whereas technical analysts
could not care less about these numbers. Which strategy works best
is always debated, and many volumes of textbooks have been written
on both of these methods. So, do some reading and decide for
yourself which strategy works best with your investment philosophy.
(For additional reading, see Introduction To Fundamental
Analysis and Introduction To Technical Analysis.)

RELATED FAQS
1.

Is it better to use fundamental analysis, technical analysis or

quantitative analysis ...
Understand the difference between fundamental, technical and quantitative
analysis, and how each measurement helps investors ... Read Answer >>

2.

3.

4.

5.

6.

How does fundamental analysis differ from technical

analysis?
Learn about the differences between technical analysis and fundamental
analysis, such as how these investment strategies ... Read Answer >>

How legitimate are companies that advertise debt

consolidation for all my credit ...

Learn about how fundamental analysis ratios can be combined with quantitative
stock screening methods and how technical indicators ... Read Answer >>

What items on the income statement are considered in

fundamental analysis?

Find out which items in the income statement are considered in fundamental
analysis. How do investors use revenue, profit ... Read Answer >>

Do you always have to consider intrinsic value when

purchasing a stock? Why or why ...

Take a deeper look at why value investors consider a stock's intrinsic value an
important consideration before picking a ... Read Answer >>

What types of data are necessary to make a technical

analysis?

Read more: What is the difference between fundamental and technical analysis? |
Investopedia http://www.investopedia.com/ask/answers/131.asp#ixzz4K238NIsA
Follow us: Investopedia on Facebook

) Volume Trends
When an analyst or an investor is researching a stock, it's good to know what
other investors think about it. After all, they might have some additional insight
into the company or they might be creating a trend.

One of the most popular methods for gauging market sentiment is to take a look
at the recently traded volume. Large spikes suggest that the stock has garnered
much attention from the trading community and that the shares are under
either accumulation or distribution.
Volume indicators are popular tools among traders because they can help
confirm whether other investors agree with your perspective on a security.
Traders generally watch for the volume to increase as an identified trend gains
momentum. A sudden decrease in volume can suggest that traders are losing
interest and that a reversal may be on its way. (To learn more, readGauging The
Market's Psychological State.)
Intraday charting is growing in popularity because it enables traders to watch for
spikes in volume, which often correspond with block trades and can be extremely
helpful in deciphering exactly when large institutions are trading. (For more on
this subject, see Volume Oscillator Confirms Price Movements and The Pros And
Cons Of Institutional Ownership.)
2) Tracking Short-Term Movements
While many fundamental investors tend to focus on the long haul, the odds are
that they still want to obtain a favorable buy-in price and/or a favorable selling
price upon liquidating a position. Technical analysis can be handy in these
situations as well.
More specifically, when a stock punches through its 15- and/or 21-day moving
average (either to the upside or the downside), it usually continues along that
trend for a short period of time. In other words, it is largely an indicator of what to
expect in the coming term. Incidentally, 50- and 200-day moving averages are
often used by chartists and some fundamental investors to determine longer
term breakout patterns. (To read more about how to interpret these indicators,
see our Moving Averages tutorial.)

Read more: Blending Technical And Fundamental Analysis |

Investopedia http://www.investopedia.com/articles/trading/07/technicalfundamental.asp#ixzz4K23OMUSI
Follow us: Investopedia on Facebook

Blending Technical And

Fundamental Analysis
By Glenn Curtis

People often ask if technical analysis can be used as an effective

substitute for fundamental analysis. Although there is no definitive
answer whether technical analysis can be used as a whole
substitution for fundamental analysis, there is little doubt that
combining the strengths of both strategies can help investors better
understand the markets and gauge the direction in which their
investments might be headed. In this article, we'll look at the pros and
cons of technical analysis and the factors that investors should
consider when incorporating both strategies into one market outlook.
The Best Of Both Worlds
Some technical analysis methods combine well with fundamental
analysis to provide additional information to investors. These include:

1) Volume Trends
When an analyst or an investor is researching a stock, it's good to
know what other investors think about it. After all, they might have
some additional insight into the company or they might be creating a
trend.
One of the most popular methods for gauging market sentiment is to
take a look at the recently traded volume. Large spikes suggest that
the stock has garnered much attention from the trading community
and that the shares are under either accumulation or distribution.
Volume indicators are popular tools among traders because they can
help confirm whether other investors agree with your perspective on a
security. Traders generally watch for the volume to increase as an
identified trend gains momentum. A sudden decrease in volume can
suggest that traders are losing interest and that a reversal may be on
its way. (To learn more, read Gauging The Market's Psychological
State.)
Intraday charting is growing in popularity because it enables traders to
watch for spikes in volume, which often correspond with block
trades and can be extremely helpful in deciphering exactly when large
institutions are trading. (For more on this subject, see Volume
Oscillator Confirms Price Movements and The Pros And Cons Of
Institutional Ownership.)
2) Tracking Short-Term Movements
While many fundamental investors tend to focus on the long haul, the
odds are that they still want to obtain a favorable buy-in price and/or a
favorable selling price upon liquidating a position. Technical analysis
can be handy in these situations as well.

More specifically, when a stock punches through its 15- and/or 21day moving average (either to the upside or the downside), it usually
continues along that trend for a short period of time. In other words, it
is largely an indicator of what to expect in the coming term.
Incidentally, 50- and 200-day moving averages are often used by
chartists and some fundamental investors to determine longer
term breakout patterns. (To read more about how to interpret these
indicators, see our Moving Averages tutorial.)
For those looking to time a trade or to solidify a favorable entry or exit
price in a given stock, these types of charts and analyses are
invaluable.
3) Tracking Reactions Over Time
Many fundamental analysts will look at a chart of a specific stock,
industry, index or market to determine how that entity has performed
over time when certain types of news (such as positive earnings or
economic data) has been released.
Patterns have a tendency to repeat themselves, and the investors who
were lured (or put off by) the news in question tend to react in a similar
manner over time.
For example, if you take a look at the charts of various housing stocks,
you'll often see that they react negatively when the Federal Reserve
chooses to forgo a cut in interest rates. Or check out how home
improvement stores tend to react when reports of new and existing
home sales decline. The reactive move lower is pretty consistent each
time.
In short, by analyzing historical trends, investors can ballpark the
possible reaction to a future event. (For related reading, see Why do
stock prices change following news reports?)

The Downside to Blending

Technical analysis may also provide an inaccurate or incomplete
perspective on a stock because:
1) It's History!
While it is possible to decipher and anticipate certain movements
based on patterns or when a particular stock crosses a major moving
average, charts cannot usually predict future positive and/or negative
fundamental data - instead they are heavily focused on the past.
However, if news leaks out that a company is about to release a good
quarter (for example), investors might be able to take advantage of it
and this good news will be apparent in the chart. A simple chart
cannot provide the investor with crucial long-term fundamental
information such as the future direction of cash flow or earnings per
share.
2) The Crowd is Sometimes Wrong
As mentioned above, it's nice to buy into a stock that has upside
momentum. However, it is important to note and understand that the
crowd is sometimes wrong. In other words, it is possible that a stock
that's being accumulated en masse this week may be under heavy
distribution the next. Conversely, stocks that are being heavily sold
this week may be under accumulation in the weeks to come.
A terrific example of the "crowd is wrong" mentality can be found in the
large amount of money that went into technology shares at the turn of
the millennium. In fact, money kept flowing into shares of companies
such as CMGI or JDS Uniphase, as well as a number of other hightech issues. When the bottom dropped out, the money flow into these
stocks and the stock markets on which they traded dried up almost
overnight. The charts did not indicate that such a harsh correction was
coming. (For related reading, see The Madness Of Crowds.)

3) Charts Don't Typically or Consistently Forecast Macro Trends

Charts also are generally unable to accurately
forecast macroeconomic trends. For example, it is nearly impossible to
look at a major player in the oil and gas sector and decipher
definitively whether OPEC intends to increase the amount of oil it
pumps, or whether a fire that just started at a shipping facility in
Venezuela will affect near-term supplies.
4) There is Subjectivity
When it comes to reading a chart, a certain amount of subjectivity
comes into play. Some may see a chart and feel that a stock is basing,
while another person might see it and conclude that there is still more
downside to be had.
Who is right?
Again, there's no calculation that can be done to solve the argument,
as might be the case with fundamental analysis. When it comes to
charting, only time will tell which way the markets will actually go.
Bottom Line
Technical analysis can be a very valuable tool, but it is important to
realize the benefits as well as the limitations before diving in. There is
no definite answer about whether technical analysis should be used
as a substitute to fundamental analysis, but many agree that it has its
merits when used as a compliment to other investing strategies.
To learn more about how to use technical analysis, read The Basics
Of Technical Analysis.

RELATED ARTICLES

1.
INVESTING

Technical Vs. Fundamental Investing - Friends Or Foes?

Making money in the stock market has been likened to gambling by some, but
experienced investors who do their homework usually profit by doing market
analysis. However, even experienced investors ...

2.
INVESTING

Fundamentals And Technicals: Together At Last

It's a big mistake for a fundamental investor to ignore technical analysis. Find out
how to become chart smart.

3.
INVESTING

Fundamental Analysis For Traders

Find out how this method can be applied strategically to increase profit.

4.
TRADING

Introduction to Types of Trading: Technical Traders

Learn about the different traders and explore in detail the broader approach that
looks to the past to predict the future.

5.
INVESTING

What Type Of Trader Are You?

There are different ways stock traders attempt to profit from market movements.
Which of the strategies do you use?

6.
INVESTING

What Are A Stock's "Fundamentals"?

The investing world loves to talk about fundamentals, but do you know what it
means?

7.
INVESTING

Finding Short Candidates With Technical Analysis

Learn how to distinguish tops and bottoms in the equity market when short
selling.

8.
TRADING

Mastering Short-Term Trading

Making money in a pressure-cooker environment is all about minimizing risk on
hot picks.

9.
INVESTING

What The Market Open Tells You

Read more: Blending Technical And Fundamental Analysis |

Investopedia http://www.investopedia.com/articles/trading/07/technicalfundamental.asp#ixzz4K23bzBy9
Follow us: Investopedia on Facebook