In Part One of this two part series on equity basics, the focus was on fundamental reports. In Part Two, we will now address the details of the technical side of the stock market. Many investors have a very narrow view of the technical analysis vs. fundamental aspects of the stock market. To a certain extent there is a correspondence, however one should not be fooled by this. There are significant differences between the two.
There are three components of fundamental research. First, an investor must look at the fundamentals of the company. This includes the company’s balance sheet, cash flows and other financial documents that may show the health of the business. A good fundamental report can provide an essential starting point for a technical analysis of the stock’s price action.
The second step is to obtain a well developed fundamental report from a reliable firm. The three firms that I recommend are Millenium, Macromedia and Quicken. I have a list of them at the end of this article. The third step in the process is for the investor to actually obtain and read the report. This is where many investors fall short and end up with false information or incomplete information.
If the fundamentals are accurate, the next step is to develop a fundamental chart. The chart gives a detailed picture of how the stock has done since the last fundamental report. The chart will also show the variations in price over the period. This type of analysis is called the technical analysis and is used to try to determine whether a company is undervalued, overvalued, or simply just flat.
Technical analysis does not deal with the fundamentals of the company but rather with the behavior of the market during periods when the stocks are falling or rising. If a company’s prices rise and fall at a rapid rate, this is known as a “bear market”. If the market price falls significantly between these times, it is referred to as a “Bull Market”.
Fundamental analysis covers many aspects of the company that may affect its future value. It looks at how the company has historically performed compared to other stocks. This can be determined by looking at the company’s profit and loss statement, market and industry trends, financial statements, and so on. Obviously, if the numbers are good, the investor will likely buy because the market will turn around.
Fundamental analysis cannot be used to predict exactly when a stock will rise or fall. This type of analysis requires the use of technical analysis software to provide the necessary guidance. The software uses past and present day trading data to analyze the factors that influence stock prices. It then combines this information with current, real time information to try to determine which companies are being held back. These factors can include management news, economic reports, and even political events.
Companies can be determined by these trends and this process can be used by novice or experienced traders alike. It allows investors the opportunity to make more accurate decisions in regards to buying or selling a stock. The more accurate the information, the better the timing for a buy or sell. However, no program can tell you when to make a particular investment, so it is important to do your own research and use the fundamental analysis as well as the technical analysis to guide your decisions.
Fundamental analysis covers the entirety of the business’s history. This includes not just the recent past but also a more in-depth look at the company’s history. It goes into how the company grew in one area and how it is doing now in other areas. It looks at everything from the company’s financials to its management news. A thorough analysis of the fundamentals will tell you what direction a company is moving toward and how difficult it will be to get there.
Technical analysis looks at how a company’s earnings are doing compared to its competitors. By examining the company’s strengths and weaknesses, this type of analysis may point out what the company should focus on improving in order to increase its profitability. This is a bit less precise than fundamental analysis, but it gives you a better chance of hitting the mark if you do hit it. Likewise, it may point out weaknesses that a company can work around in order to become more profitable.
Finally, fundamental forecasts take into account the health of the company’s financials. Looking at the profit figures for a period of time can provide investors with an idea of what to expect in terms of increases and decreases in the company’s stock price. The key to this type of analysis is to pay close attention to the health of the company’s finances. If the profits are good and the stock price has steadily increased, the outlook may indicate that the market may move strongly in that direction. However, if the profits are falling and the stock price has dropped, then investors may need to take a different approach.
