@HMY -- trotsky, 09:29:21 11/29/06 Wed
there will be a battle at the $17 long term resistance level. note that the more often a resistance level is tested, the more likely it will eventually give way.
@debate on fundamentals -- trotsky, 09:26:24 11/29/06 Wed
i have often written in the past about the limitations of fundamental analysis, and usually i buttress my arguments with examples. let me list yet another example.
if you look at a graph of the copper price overlaid over inventories at the LME, what do you see? what you see is that downtrends begin precisely when the fundamentals look the MOST bullish (i.e., inventories are extremely low) and uptrends begin when the fundamentals look extremely bearish (inventories are very high). interestingly, it is often the case that the fundamental datum 'copper inventory' continues to look at odds with the new trend well into the trend (i.e., if you 'time' copper trades with inventory data, you are bound to miss a good chunk of the price movement).
however, my criticism of fundamental anlysis (or rather, my contention that its applicability to practical investment decisions is very limited) should not be seen as a call to abandon it completely. imo one must be aware of a market's fundamentals as a matter of course, as long as one is also aware that the information is likely not of particular value at any given moment in time (for instance, one could hardly have justified buying a number of internet stock in '98-'99 based on their non-existent fundamentals - as Henry Blodget so famously remarked, they were mostly 'crap'. however, this was nevertheless the market sector offering the by far biggest opportunity for profit in '99. a close look at market psychology and the charts was what was needed to participate).
on the macro-level, what makes some sense is imo the attempt to predict FUTURE fundamental developments based on the information available in the present, as well as the historical information of a particular fundamental datum's cyclical behavior. take for instance the share of GDP represented by coporate profits. this is a data set that tends to oscillate in a channel, and the knowledge that it is currently at the upper end of this historical channel is useful fundamental information, as it allows us to project that corporate earnings growth will likely mean-revert in coming years.
however, where fundamental information is most useful is imo at the micro level, or put differently, in bottom-up type analysis.
in short, when it comes to decide upon the investment merits of a particular individual stock, information about its fundamentals is absolutely necessary. one could not do Graham-Dodd style value investing without awareness of these data, and as Mr. Buffett's example shows, the Graham-Dodd style of long term value investing is the most profitable long term investment approach in the stock market.
still, even if one has judged that a stock has merit based on fundamentals, one is often better off with employing stops based on technicals than without such stops. this is because the market very often knows more than what is publicly available information-wise. this hidden knowledge can only be revealed via the technicals - a breakdown in a 'good stock' may not even tell you anything about this particular stock, it may just as well merely be a warning that market-wide liquidity is so weak that not even good stocks will rise, but it SHOULD tell you to get out no matter what you think (and vice versa when a 'bad stock' rockets through resistance). |
