"Fundamentals of what ? The books are always cooked."
Well ®§ammy€, that's a Sweeping Statement if ever we read one !!
No doubt you consider that coming up with something like that is good enough reason to ignore a company's Financial Fundamentals and concentrate, solely, on "recognizing past history of chart patterns".
One has to wonder how your comment of "the books are always cooked" would go down with the various Auditing Institutions, both in the USA and Internationally, whose primary function is to ensure that a company's Financial Statements are NOT COOKED !!
Anyway, I don’t necessarily disagree entirely with using Technical Indicators, but I believe one has to understand what they are constructed of and how that affects what they display.
Virtually every Indicator is driven by a mathematical formula which uses PRICE, TIME and/or VOLUME as its data. And mathematical formulas can only produce a result related to the nature of the input data. None of those data items can tell one anything about the Fundamentals of a company. All they can really convey is the interaction between Buyers and Sellers.
And why Buyers and Sellers do what they do in the shorter term, is often anybody’s guess, hence my reference to MU in my Message #90 on your Board.
On the other hand, if one has analyzed a company’s Financial Statements, and has determined from several critical financial ratios, plus other factors, that one is looking at Quality and ongoing profitability, then one can be sure that in the medium to longer term, that will be reflected in its price chart.
But if a chart shows an upward price move that is not supported by Quality Fundamentals then no amount of "past history", or combination of Technical Indicators, will ensure a sustained upward price move.
A good example in this regard is reflected in AHFI’s performance around October/November 2004. We saw the stock go from about $1 to about $5 with all the supportive Indicators. However, one glance at its Fundamentals would have told you that this was "pie in the sky". It now trades at $0.0005c because it was junk then, and it’s still junk now.
In my opinion, if you want to study charts one of the best times to do it is after the company has published its financial report or has declared information regarding its future estimated profit. If one’s analysis of the fundamentals indicates Quality then one can keep an eye on the Technicals in order to gauge Market response and timing, because eventually the price will reflect the inherent Quality of that company.
And with regard to Fibonacci’s percentage levels of 38%, 50% and 62%, why should a stock’s price stop at 62% and change direction ? How many times doesn’t one see the 62% level bypassed. And when the price hits the 50% level, does it always stall there and reverse ? Yes, sometimes it may react at these levels, but as many times, if not more, it doesn’t. So how much reliance can one place on a mathematical series that has absolutely nothing to do with the prime mover of a stock’s price which, ultimately, resides within the Financial Fundamentals of a company ?
I suggest one FIRST gets the Fundamentals of a company right, and THEN keep an eye on Market reaction through several Indicators. Doing it the other way around, or ignoring the fundamentals, is putting the cart before the horse. |
