David -
You are both right and wrong.
Long term, a stock lives or dies by the fundamental strength of the company. Given a constant P/E ratio, price growth would precisely follow earnings growth.
However, as we know, P/E ratios don't stay constant... they move around based on the mood of the buyers and sellers of the stock. When the bulls want to buy the stock more than the sellers want to sell, the P/E goes up... and the reverse is also true.
All of this price action is shown in a chart. Looking at it this way, fundamental strength of the company is the CAUSE, and price (and the chart) is the EFFECT. ZOLT went up PARTLY because people expect better fundamental results based on their results and announcements for the future.
However, SHORT TERM, there are all sorts of people (like me) who chart stocks to look for things like support and resistance levels, crossovers, breakouts, you name it. And people will trade based on that, because they believe they have *inferred* from the chart patterns the mood of the bulls/bears. And because a lot of chartists use the same indicators, some of these trades tend to happen at about the same time. When this happens, price is affected noticeably.
Looking at it this way (more short term), the CHART is the CAUSE, and price is the EFFECT.
Case in point... I bought ZOLT on the 25th based on a bullish signal off a chart. I'm up over 30%, looking for a sell signal to take my profits (I won't sell until I get that signal). Did I buy because of fundamentals? That's ONE reason. But I also bought it because it was TIMELY.
So, it depends on your time horizon. Eventually, the fundamentals rule. But if you don't think there are chartists out there that can move the stock one way or other in a given day (or week or even month), you are wrong... and you might get hurt on a stock that is heavily charted/traded.
Loren |
