techno-fundamental analysis will burgeon. There is no question which will be have the upper hand technical analysis or fundamental analysis. That is ludicrous. Fundamentals and technical importance are like a lava lamp, they morph and change on their own. You can't call the upcoming markets any more than you know what new shape will come with each minute. Bull markets probably call forth technical analysis as "KING".. but market corrections, bear markets are completely different animals and can't be played unless you change the criteria. When investors are seeing the effects of huge valuations and tech stock decline en masse you sure as heck are getting no help from technical analysis. Especially when a good deal of stocks are in free fall.
Traders scoff at fundamentals, valuations and price-to cash flow ratios in bull markets but when institutions are selling tech stocks in bulk everyone saw the results for traders. TA did not help. TA called no market unless you are in the for a 5 minute trade and escaping before any real damage was done. For all intents and purposes the heavy shorting we did in the last 10 weeks was not discerned from chart patterns alone but in the lagging fundamentals and huge multiples that kept stocks in free fall.
When "strong" stocks began dropping from support levels it was a sign to short them and to short the weaker ones for more than the casual daytrade.
When analysts are upping price targets on stocks trading with P/E's of 300, 400 and 500 and even more did you really think technical analysis is going to reveal the ensuing results on charts? When investor sentiment is dropping and there is panic selling is that going to be revealed in charts? Nope.
When companies talk about 100 to 300% increases in REVENUE to distort lack of earnings or the fact that these companies don't even have enough free cash flow to pay their employees. Or what about companies that disclose earnings but don't even speak of costs, operating expenses, debt that eats into any 'profits', acquisitions that will inevitably dilute earnings next quarter/s. What about how much money is left for the company once they pay their taxes, debts, and other expenses. How much more relevant is that for companies with absolutely no earnings?
When you are daytrading these companies on the long side, will they move up because the chart looks good the night before? Nope. How come these rallies are sold into? Can you infer that from the charts? Nope. Now come intraday trends to the upside lasted for weeks only a matter of 15-20 minutes? That is investor sentiment, key indicator reversals that have and had no faith any longer in companies getting ahead of themselves. Traders no longer gullible that morning rallies continue through the trading day. You can't see in a 5-minute chart anything more than for the next few bars. You can't see in a daily chart anymore than a possible short or long play in the morning.. but which? You used to be able to tell the bias on the long or short side in the past years from chart patterns and historical price patterns. Now trends are becoming too allusive to call. The major trend that seems to reassert itself is the downtrend and that you can't see from charts alone.
When traders finally realize that fundmentals and technicals taken as a unit are important in an everchanging market climate than they will succeed even more.
Post #4201 December 7, 1997 excerpt:
article entitled Trigger Happy
....Merrill Lynch poll sheds light on the vicious punishment that usually follows earnings disappointments.
Have you ever wondered what prompts Wall Street's big boys to pull their billions out of one stock and put them into another? Well, now you have the answer, or rather, a series of answers, thanks to the latest annual poll of Merrill Lynch's institutional clients. While the average investor might select blue-chip companies that boast familiar products, strong balance sheets and secure dividends, institutions shun such straightforward results.
Amond the 122 outfits that responded to Merrill's poll, the top strategy was buying stocks of companies that had just delivered higher than expected earnings and selling those whose earnings had fallen short. On Wall Street, these occurences are known as "earnings surprises". As the accompanying tabl shows, this strategy layed a role in the stock selections of 54% of the institutions:
WHAT THE PROS WATCH:
54.1% Earnings Surprise
50.8% Return on Equity
48.45% Analysts earnings revisions
48.45% Price-to-cash flow ratio
45.9% Projected five year profit growth
43.4% Debt-to Equity ratio
41.0% Earnings momentum
38.5% Relative Strength
34.4% Price to earnings ratio
33.6% Price to book ratio
33.6% Analysts' opinion changes
31.1% Earnings variability
27.9% Price to sales ratio |
