Hi Monty - on TA vs FA I think you have it pegged.
FA indicates direction of economic forces, TA indicates price trajectory. They dominate in the long and short terms respectively.
Indeed, TA is largely irrelevant for long term movement. Give two minutes of silence for eToys before rebuttal. If you bought CSCO in 1991 does it *really* matter today if you got it at the highest price ($0.48) or lowest ($0.14)?
Similarly, FA is largely irrelevant for short term movement. The impact of a suddenly announced 200 M$ contract by CSCO, at 20% net margin represents a previously unknown $0.0057 profit per share - or 0.02% share price. On its own merit, "sudden news" should barely move the stock.
But arguing one versus the other is like arguing left-handedness versus right-handedness. Academic at best.
Indeed, they are complementary. Long term moves with FA, short term moves with TA and in between they go their separate ways like a swing (TA) and gravity (FA).
When both are aligned, you can trade, invest or speculate with confidence. When misaligned, trade with TA, invest with FA, and speculate with whatever turns your crank.
I happen to invest for the long term, so I put some stock in fundamental economic analysis. When it comes to growth stocks like CSCO this gets very difficult because they don't pay you back directly. You have to try to figure out what future-dudes will pay for the stock. My theory is that economic value will be playing an increasing role as boomers age and lose interest in "speculation".
Today however, TA rules. Witness CSCO stock price.
John. |
