123 Trends and Reversals Message Board

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Strategies & Market Trends : 123 Trends and Reversals

QQQ 629.07

+0.5%

Oct 31 4:00 PM EDT

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To: Ally who started this subject	2/13/2001 9:53:41 AM
From: Ally	of 147

Emulex (EMLX), dropping $40 yesterday, shredding 50% of its market valuation, is a good example of how fundamentals drive a stock chart and not the other way. A trader, trading just on technical analysis of EMLX playing for a bounce on an oversold indicator, has had a rude awakening. Trading a stock without having some understanding on the stock's fundamentals may be liken to going to war with just one hand. Playing with stocks that still have astoundingly rich valuations in today's market where valuations are returning back to earth is just too risky. Fundamentals are catalysts that drive a stock chart. Sentiment rides on the fundamentals, and create trends and patterns that we see in charts. Sentiment also creates excessiveness and absurdities, resulting in extreme over and under valuations. Technicals (chart reading) are important in that it is easier to see what has happened. However, technicals are not the drivers to chart formation. Combine technicals with fundamentals, and you'd see a more complete picture when assessing the risk/reward scenarios on your trades.

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