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  1. Default Fundamental analysis wanted

    I realise a "charting website & forum" is going to be heavily focused on TA.

    However, I also know many on the Forum seem to use a bit of FA to add to their overall view of the market.

    It seems to me, that we have recently been bombarded with significant news that should alter the fundamentals of many companies, so ...

    How are Fundamental Analysts treating the news.

    1. XJO is nearing a record high; and US is doing the same.

    2. RBA is worried about inflation and is tightening monetary policy

    3. Personal debt levels in Australia are at an all time high caused by people being over-extended on home mortgages and credit card debt.

    4. The WBC Consumer Sentiment Index, which was just released at 1030 a.m., states:

    Consumer Sentiment is at the 2nd lowest level since the 2001 Recession"

    So, how should fundamental analysts treat these pieces of information when assessing their market strategy?

  2. Default

    If you think the market might turn bearish you could have a look at those stocks whose Earnings Per Share are rising faster than the share price (I'm still working on a scan for this)

    If that stock is also showing good TA the two sets of facts ought to confirm each other as a buy

    Then again doesn't Weinstein say never to trade against the market trend?

    Index trading is for those who dont want to be exposed to individual stock risks and rewards

    I am sure you know more about how to recognise Index turning points than I do and I would think that sentiment has to outrun fundamentals strongly ... in the form of panic buying prior to a major Index down turn

    However, there may well be examples in history where this condition was not met

    As a trend follower I would suggest you do not confuse yourself with fundamentals unless you think a group of fundamentals is about to outweigh sentiment and even then sentiment can run counter to fundamentals for weeks or months before the truth kicks in

    So while I believe fundamentals ultimately matter most, so does sentiment which can for periods be way out of kilter with fundamentals (eg the dot com boom)

  3. Default

    Thanks for taking the time to reply.

    You know me - I never know which way the market is going other than for the 30-60 minutes that I have an open position (and even then I have no idea sometimes!!).

    I've just been intrigued to observe the continuing upward move on the XJO in recent times, since as a novice Fundamentalist, I would have thought recent economic indicators are turning a tad bearish?

    Best wishes

  4. Default

    The Reserve Bank is hoping you are right and that spending especially on credit will be reined in

    This means a downturn in retail trading and housing, but their reasoning is that the record boom can be sustained for longer if inflation is controlled

    Raising the price of money means that most rising EPS results will indicate fundamental strength since most companies (though not all) have an interest bill to pay before announcing earnings for shareholders

    If the economy survives these regular touches of the brakes it may be that the ultimate crash through the front windscreen when panic selling begins is delayed or minimised

    That I believe is the theory

  5. Default

    To put these comments in perspective, I trade CFDs on a medium term basis. Some days I can't get anywhere near a screen. I'm ahead.

    An international funds manager the family uses has been on about the indicators you itemised with specific reference to the US for the past three years, and has been bullish about gold and silver for the same length of time.

    I have fallen into the trap of shorting stocks like HVN and JBH when my own concerns about too much credit were reinforced by particularly pointed comments from the institution. It wasn't difficult at the time to see supportive bearish chart patterns that were quickly swamped by reality as the prices took off again.

    Your fundamentals contribute to long term economic cycles that have their own inertia. I believe the inertia of economic policy is eventually changed by friction with other policies and responses, rather than an identifiable event; in much the same way that a tanker without power will stop as a result of friction with the water, currents and wind.

    So, what will eventually grind down the need to buy computer games? or respond to the continuing TV ads for access to home mortgage credit to "enjoy the lifestyle you deserve"?

    The current south west Sydney mortgage woes can be put down to an abysmal lack of knowledge of personal money management in the face of inescapable seduction for the good life, where it was implied that big time money management would look after itself. No need for friction there - those mortgages were anchors from the start. But then again, we are told that house prices are on the rise again.

    The debt figures generated on a personal basis by retail consumerism aren't as individually big as those for housing. However,the same underlying weak money management skills may well trigger the ultimate panic that takes hold when there isn't anything left to spend.

    So, back maybe to Mr.Weinstein. One of his indicators for a bull market top was extra-ordinary exuberance in analyst reporting in the face of underlying economic weakness. I haven't seen that yet, but the underlying doubts about how long the party will run is most certainly there. Keep in mind Keynes' saying that the market can stay wronger for longer than we can stay solvent.

 

 

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