Fundamental Vs. Technical Stock Analysis

Fundamental Stock Analysis Versus Technical Stock Analysis

The computerized financial data industry has become a $4 billion business since the first computers showed up on brokers' desks in the 1970s. Today, dozens of online services are available that can overload a hard disk with megabytes of data in a flash, but comprehension or understanding do not come with all that data. Burton G. Malkiel, in his A Random Walk Down Wall Street, explains:

A random walk is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. Investment advisory services, earnings predictions and complicated chart patterns are useless (Malkiel, 1996, 24).

In other words, if one is going to invest in the market, it's up to that person to learn how to make sense of the wide variety of information available to the novice investor. It is that challenge that structures this paper. Part I, Definitions, will specify the differences between the two broad kinds of financial analysis B fundamental and technical. Part II, Applications, will describe some of the better-known technical analysis tools. Part III, Dialogues, will describe the key points of the opinions that Fundamentalists hold about Chartists, and vice-versa. Part IV, Conclusions, will consider suggestions for change.

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Line Indicators Line indicators are in the same family as moving averages, but with the goal of finding lines (or dots or points along those lines) that measure advances and declines reflecting market breadth. Line indicators give a time/variance summary net daily differences between advancing issues and declining issues, called in Wall Street shorthand, "the A/D line." This classical indicator tends to give a good reading of the overall strength of the market. A break in the A/D line usually precedes a break in prices. Most chartists look for non-confirmation and divergence when studying the market's A/D lines (Schwager, 1984, 62). Arms' Ease Of Movement Developed by Richard W. Arms, Jr., the Arms' Ease of Movement is an equi-volume charting tool that creates shapes (boxes) on a chart. The purpose is to determine the ease, or difficulty, a particular issue faces as it moves in one direction or another. The ease factor is a ratio between the height (trading range) and width (volume). In general, a higher ratio results from a wider box and indicates difficulty of movement. A lower ratio results from a narrower box and indicates easier movement. This ratio is then related to a comparison between the current day and the

Category: Economics - F