Registered User
Joined: 10/7/2004
Posts: 45
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I use only technical anaysis for decisions on buying and selling. I ignore fundamentals completely and wonder whether they would be helpful in deciding which of several candidates would be best to buy or as an initial screen to search for candidates.
Has anyone done any statistical analyses to determine the relationship between fundamentals like earnings/sales/divedends and the FUTURE course of stock prices?
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Registered User
Joined: 12/8/2004
Posts: 6
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Here is a strategy that has worked well for me. You buy using technicals and fundamentals, and sell using technicals
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Sunbird I think that you may want to check CANSLIM from Willian O'Neil.
Just pick an issue of the IBD and you would be in your way to answering your question.
Also fools.com would be a good site to check.
By the way the answer is yes.
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 Gold Customer
Joined: 10/7/2004
Posts: 1
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Sunbird,
Here is the way I see it. Big money (Mutual Funds and such) is what really pushes stocks around. They pay less attention to technicals and more to fundamentals. But, when they make a commitment to a stock, it shows up in the technicals. So, for there to be good technicals, there should be some good fundamental some where. Of course time scale is important on this. Short-term trading, meaning anything under a couple of weeks, this does not relate. But once you start looking at weekly charts, this sort of approach starts to make sense for better and worse performing stocks.
One response mentions CANSLIM, and I guess you could say I am saying the same thing, only using a lot more words.
Sometimes it is a chicken and the egg question. What came first? The mutation that resulted in a chicken embryo that developed inside the pre-mutation's egg. Technical strength can surface before the fundamentals improve, like in a turnaround situation. Other times, like right now in the chip stocks. The fundamentals are looking great, but the technical strength is not really there as one would expect.
If you do a lot of research on this you will find it works both ways.
Tacticaltrading
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Registered User
Joined: 12/27/2004
Posts: 15
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QUOTE (Sunbird) I use only technical anaysis for decisions on buying and selling. I ignore fundamentals completely and wonder whether they would be helpful in deciding which of several candidates would be best to buy or as an initial screen to search for candidates.
Has anyone done any statistical analyses to determine the relationship between fundamentals like earnings/sales/divedends and the FUTURE course of stock prices?
as supply and demand will ultimately drive a price up or down, it stands to reason that a company that has a "positive trigger" in the future to increase demand has a greater likelihood to increase the price of the stock. Hence, fundamentals do count, however, these triggers are also spotted by e.g. the simple notion of high volume breakouts.
Gentilez
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Registered User
Joined: 11/16/2004
Posts: 105
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I believe adaptation to changing market inefficiency's requires a lot of both for buying in anticipation of price action.Allthough a solid fundamental company can have a stock that underperforms it's sector, while a grossly unfit company with a higher beta for example, may move ahead on buyer illusion within a hot sector.I think developing a style of trading using more or less of one or the other can have it's sucesses at different parts of economic cycles.Developing both with a keen eye for anticipating what might have the greater impact for profit. So gergitating the most important data & utilizng it on the right trade at the right time is the holy grail for all of us.
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Gold Customer
Joined: 12/30/2004
Posts: 38
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I've done this for a while. For a long time I thought technical was total BS. Along comes the PC. And software. And TC2000 and a bunch of others. Technicals are not BS. Technicals are the complete picture. You don't need anything else. It is all about trade management and opportunity. When you take a trade you take a chance (read that risk) whether you trade technicals or fundamentals or a combination of the two. If you think that fundamentals matter please explain WYNN. I've traded it about 7 times this year with only one loss. Buy and hope would have netted a triple or so, which is better than I have done with my six wins. But the point is: WYNN has rotten fundamental ratings in IBD, no prospect of earnings this side of next July or so, but has a huge IBD technical rating. Why? Because its performing magnificently. If you use fundamentals you will be able to trade this for the first time around next December. By then I will either be in again with a fat profit or be long gone while it tanks. The bottom line is: technicals rule.
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Registered User
Joined: 12/30/2004
Posts: 1
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Big money tends to be "smart" money.
Smart money knows what the rest of us are trying to find out; Be it fundamentals, news about to break, whatever.
Big money acts on what it knows. Big money leaves "tracks". They cannot hide their trades, although they can and do, for as long as they can get away with it, a good job of misrepresenting their intentions much like a good poker player.
Floor brokers, market makers, and traders having access to the floor know which brokers represent big money.
When you see such a broker working an order in size while trying not to disturb the market you can tell which side of the market he's on and you act accordingly.
It's called "piggy backing". You figure he must have his reasons: When you see a Swiss banker jump out a window, follow him because he's probably going to make a fortune on the way down.
Everyone is working on imperfect information except the one who "knows" and he isn't talking. But he is acting.
The trouble with the "fundamentals" that count is that we will never know what's important to know in time to benefit other than observing the actions of those presumed have such knowlege.
Therein is the "art" of interpreting tecnical analysis.
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Registered User
Joined: 12/2/2004
Posts: 2
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...the most important step is to determine market direction. If you can't figure this one question, don't be trading!
Fundamentals and technicals each have their place...the hardest thing to do is to develop a trading system to match your personality [you must know who you are]; and to develop the discipline to follow it!
Next is to limit your losses...while protecting profits. Its a long race; you do not have to make a million today...just make profitable or small loss trades. Prehaps start with Dow 30 stocks which are large cap and, in general, slower moving than small caps.
Starting at a young age and saving consistantly is the first step toward financial independence. If you do not see low risk, higher profit trades .....sit with cash on the sidelines.
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Registered User
Joined: 10/7/2004
Posts: 6
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XOXO,There appears so many bits and pieces of information out there that the real solution is to work at your "Craft of Interpretion". It's like peeling back he layers of an onion. Disseminated info for a tight subjective analysis.
Sharing evaluations is the real tool for advancing one's skills.
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Gold Customer
Joined: 12/2/2004
Posts: 28
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For the most part,I agree with "mpmeyers" above.
I find that using all the information I can get my greedy little hands on helps.
I have a high tolerance for risk, but I feel better if I know there is actualy something substantial behind the company who's stock I buy.
If I'm looking for a short term trade where I can pay very close attention, fundamentals don't matter that much. If however I want a longer term trade (usually because I have to go to work and can't watch the real time quotes all day) then I want a real company.
Nothing worse than coming home to find that the high flying shell was a pump and I was the chump as the price crashed through my stop like it wasn't even there, and never looked back.
Stocks with good techs rise and stocks with good fundamentals fall for reasons unk to us, but I feel that having a solid company behind the shares I buy has enhanced my abilitiy to pick winners. It also helps me sleep at night.
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Registered User
Joined: 10/7/2004
Posts: 45
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Thanks to everyone who responded to my question. However what I got back was philosophy...what I wanted was scientific evidence that certain fundamentals PRECEDE changes in the price of a stock. Has anyone done any real anaysis of this? Can you show it?
Sunbird
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Gold Customer
Joined: 12/2/2004
Posts: 28
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No offense intended, it sounds like you don't know what fundamentals are.
I don't believe you will find "scientific evidence" because there is no such thing in the stock market.
Earnings, sales, debt, current ratios, book values share holder equity, cash flow, etc... all influence how people determine the value of a company and that in turn effects price. Price is not predictable however because of numerous other factors ranging from institutional activity to raw human emotion that influence preception of the current and future value of the company, and of share price.
Future, earnings, sales, etc... have great influence since investors are speculating on an increase in the company's value (and hopefully share price) and therefore will bid up the current price with the hopes of future increases in these values. This is why many investors find PE ratios to be so important. (The opposite is of course true for those who wish to short sell.)
Quite often you will see price move just prior to the release of earnings or news. A recent example is AXYX a biotech company that is working on a drug to fight Alzheimer's. They announced the completion of phase III trials on 12/28/04 and said the results will be avaiable in 3/05. On 12/13, the uptrend it was in since august ended (daily TSV also hit the 0 line right about then.) The price has continued down. Is this indicative of insiders reacting to failed results, or are people in the know driving the price down in anticipation of a huge run up after postive news is announced?
Look at TFSM, and XYBR. Both companies have consistantly been reporting new contracts for a few months now. These hopefully will lead to increased sales and profits, but what day (if any) will this result in a price increase?
Fundamentals are additional information that will compliment techs and perhaps round out the picture for you as to why techs are performing the way they are.
I use fundamentals to find good candidates or confirm those found with good techs, and use techs to pick good entry and exit points.
Hopefully one of the Wordens will reply to your question because they can explain this much better than I have attempted to here.
I urge you to order the three books they have available, "Street Smart chart Reading" I and II, and also "Trader's Manifesto"!
I read them on a continuous basis and have found them to be invaluable. I think they will give you the answers you seek.
Best of luck to you!
JP
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Registered User
Joined: 1/6/2005
Posts: 1
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Hello, I am kind of new to the trading world, so I am just wondering if any of you can help me in getting a good book to read about Funamentals and Technical analysis. Thanks
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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We offer Don Worden's "Street Smart Chart Reading" book series HERE.
I found them both to be a no-nonsense explanation of the basic premises of technical analysis.
- Craig
Here to Help!
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Registered User
Joined: 3/14/2005
Posts: 64
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I was fortunate enough to heard a top Value manager speak right before his retirement. He basically layed out his method and techniques for those that had the common sense to listen. The fact that he started with one client and grew to over 4 billion in assets during his career focused my attention.
He smiled widely when he spoke of free cash flow. As he put it "a man's checkbook don't lie." If a company's business net is up say 10 million and the cash and equivalents are only up say 5 million, the business is having difficultly utilizing their cash flow for some discernable reason. If a companies business net is up 10 million and the cash and equivalents are up say 10 million or 12 million etc it was time to check under the hood because the savy management could deliver the Net income to the bank account and this free cash flow was available to grow the business further at compound rates.
To make a long story short. Wow it works. Add that to your stock selection checklist.
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Registered User
Joined: 12/19/2004
Posts: 457
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Fundamentals and technicals complement each other. Both are important if you want to trade, as opposed to invest.
I'll have to dig up my copy, but Don Worden himself stresses the importance of fundamentals in Street Smart Chart Reading. Technical analysis is for those who are too lazy to try to dig up the real fundamental info.
I started out skeptical of technical analysis, went through the stage where I thoguht TA was all you need. I'm now at the stage where I find I have a whole new respect for fundamental analysis.
Much of what passes for "fundamental" analysis is extremely weak. Companies and investment need to sell stock for the highest price they can get. They will spin the company financials in a way they think will cause others in the market to bid up the share price.
Good fundamental analysis attempts to uncover the sustainable operating performance of the company. A careful reading and UNDERSTANDING of the financials can help a trader or investor anticipate far in advance, how the market will act to certain events.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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To all of you, fundamentals is what drive a company. Solid, profitable, and lean business will rise and so will their technical charts. A chart is nothing else that a reflection of what is going on in a company, the opinion of what its investors think it will be in the future, and the way in which different economic events affect such a company. A chart is nothing without a company, and a company is nothing without solid profits. Now there is the issue of whether the fundamental data tells the true or not and so the same applies to the charts. At the end, lies can only stand so long.
Now if you like to invest in companies lossing money with the hope that they will make a profit some day, that is fine. I rather invest and trade companies with are making a solid profit now and leave when they star lossing money.
The market is not about technical charts, it is about people; the people that drive the companies and their results, the people that speculate where a company is and will be X time from now, and the greed and fear that comes along with it. The chart is just a reflection of the reaction of people to those factors.
Yes there will be charts of companies going up while they are not making a cent; I have seen 100's in the late 90's, look where they are now.
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