StockFetcher Forums · General Discussion · Fundamentals vs Technicals<< 1 2 >>Post Follow-up
carolynandjoel
30 posts
msg #37298
Ignore carolynandjoel
8/3/2005 9:43:21 PM

Dear All,
Given: a short term trader (not daytrader) - say, one who holds a position a few days to a few weeks. Perhaps even, a trend trader.

Problem: How much relative importance should be given to fundamental analysis with a holding period that short?

Discussion: I know that personal preference, risk tolerance, etc need to be considered. However, in general terms, with the following choices, how many of you would fall within each range of opinion:
1)absolutely no attention need be paid to fundamentals
2)screen on fundamentals first then watch for technical formations to develop
3)a stocks price appreciation is very dependent on earnings, insider trading, institutional ownership, so all of those factors must be given first place

I am simply interested in the range of opinions on this subject. I know tha SF does not deal with fundamentals. I am curious how you all use SF vs fundamental analysis in you total approach to stock selection.

Thank you, Carolyn


brokedown
21 posts
msg #37316
Ignore brokedown
8/4/2005 6:41:03 PM

Good stocks go down for no reason, junk stocks go up for no reason, and vise versa. Buy whats going up and sell when it stalls. Due Dilegence is for people who ask why. Who cares, its about making money, PERIOD.

Tom


yaotiande
32 posts
msg #37317
Ignore yaotiande
8/4/2005 11:38:09 PM

Agreed. When you watch the chart long enough, you would know.


AMSERVE
9 posts
msg #37318
Ignore AMSERVE
8/5/2005 12:06:21 AM

Carolyn,

In the overall scheme of things, for most SHORT-TERM positions and traders, fundamental analysis ranks lower than technical analysis.

In almost all cases, stock prices (and charts) will reflect fundamental changes long before they are announced by the company. Oh sure, you will get the occasional surprise earnings miss or subpoena of corporate officers for alleged misdeeds that will blow the stock out of the water temporarily, but most of the time the price action/technical analysis tells you everything you need to know for the next several days.

Take three stocks of about the same price, EBAY, AMZN & DHI. One sells for 65X earnings, another at about 35X earnings, the last one has a P/E of 10. Two of them had earnings increases of about 50% in the most recent quarter. The third one (AMZN) was down over 30%. Why is one (Hint..it's not EBAY or AMZN) considered somewhat overvalued (Unfavorable future interest rate environment)? How do you reconcile that fundamentally?

I can't see trading SHORT-TERM by predomininantly relying on fundamental analysis but there is a good argument for limiting your trading to fundamentally sound stocks. Also, you shouldn't trade in a vacuum. It's been said that more than 70% of the movement in a stock is a result of the overall direction of the market. In other words, go with the flow. No matter how great a chart pattern looks, think long and hard about putting on a short position during rallies or go long during selloffs. Market momentum is something you want on your side.

I'm one of those that scans for chart patterns among stocks I like. Probably closest to option #2 in your list.


ronun
27 posts
msg #37321
Ignore ronun
8/5/2005 9:34:34 AM

As a die-hard market technician I always believed that the fundamentals were already "baked " into the price pattern. I've come to realize that given 2 similar chart patterns, e.g. ascending right triangle, the one with the better fundamentals results in more reliable breakouts, pull-backs, targets, whatever.
The question is how to properly evaluate fundamentals. The IBD100 is a good place to start. These are stocks with good credentials and the work of identifying them has been done for you.
But of course being an IBD stock doesn't guarantee a profitable outcome. How many people got burned by the good story put out by Enron for example. That's where the technical analysis comes in. You definetly need both.
I suggest buying the Friday edition of IBD and scanning the charts for good technical buy candidates as this is what your eyes can recognize quickly. Then select those stocks that have a composite rating of say 90 or higher. Now you have the odds in your favor in the biggest casino in the world, the stock market.
I use this approach for trades that last from 1 day to about 2 weeks. I also subscribe to a service that makes recommendations based on O'Neil's
CANSLIM approach. There are several services of this type available.
Keep it simple.



cocky_pusher
12 posts
msg #37329
Ignore cocky_pusher
8/5/2005 2:57:47 PM

You donít really understand the market until you realize that price is the only fundamental variable.

_____________________________________________________________________
Financial Genetic Programming Research
www.tau-zweig.com



carolynandjoel
30 posts
msg #37337
Ignore carolynandjoel
8/6/2005 9:00:44 PM

Dear All,
Thank you for these most thoughtful responses. They have helped me organize my ideas much better. If you will, permit me to push the issue just a bit more.

Since I believe that you all were consistent in proclaiming the importance of technicals, would there be any agreement on which technicals carry more weight? I assume that you will all agree that a basket of variables is needed. However, I am just learning that certain variables counterbalance others, ie., Parabolics with ADX.

Do you have any suggestions on books, websites, etc. where I might learn the reasoning behind the technicals? My thinking is that if I can understand the rationale of a variable, I am better capable of choosing which variable will produce the result I seek.

Thank you again, for all the thoughtful comments. I do feel that this SF site is helping me "turn the corner" toward being a better trader.

Carolyn

PS - I am a subscriber to the once a week IBD.



jclaffee
81 posts
msg #37339
Ignore jclaffee
8/7/2005 2:32:04 AM

cocky_pusher,

some folks feel that VOLUME has a story to tell, too.

Jim


brokedown
21 posts
msg #37343
Ignore brokedown
8/7/2005 11:02:51 AM

carolyn:
Most tecnicals are lagging, so I would sugjest not spending to much time on "curve fitting". They can give you some overview as to dirrection, (positive slope of LR(60), relationship to different MA's, etc.), for the short term I rely more on Pivot Points and Time/Sales and volume. Don't marry a stock, you will never go broke taking a profit!
Tom


AMSERVE
9 posts
msg #37369
Ignore AMSERVE
8/8/2005 9:34:49 PM

Carolyn,

If you are a trend trader then you need to spend time with trend-spotting indicators. Most of the ones on this site are trend following (MACD, TSI, Linear Regression Slopes) vs. other types of indicators - price, volume and volatility (OBV, ATR, etc.).

One thing to remember is that all indicators work - EXCEPT WHEN THEY DONT (about half the time). You will also find that some stocks work very well with a particular indicator while other stock charts look random when screened with the same filter.

I don't have the guts to try but I'd be willing to bet that you could almost throw darts and do just as well as long as you hold your winners, raise your stops and dump your losers quickly!

That's why it's WAY more important to manage your trade properly. Set stops, take profits, keep losses small. When you're not confident - trade smaller or stay out entirely and don't fight the market.


StockFetcher Forums · General Discussion · Fundamentals vs Technicals<< 1 2 >>Post Follow-up

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