Technical Analysis For Fundamental Investors

Technical Analysis of stocks and Fundamental Analysis are often spoken of in dichotomous terms; The former being the sole preserve of speculators and the latter of genuine investors in the stock market.

However, as all fundamental investors know, Mr Market is something of a maniac depressive with wide mood swings ranging from absolute depression to euphoria. So waiting for market prices to reflect  intrinsic values can often be a long and frustrating wait ,costing money in terms of missed opportunity and worse cost actual money if fundamental investors take positions based on their analysis and get the timing wrong. And it is here that Technical Analysis can help fundamental investors by tipping them off on which way stock price might move.

Finding a bottom after a long decline can be incredibly lucrative. But finding a bottom is not a guarantee that the stock’s price is heading higher. For that, a person must use a 200-day moving average. The cross above that average, is an indicator that the move is indeed for real.Using this knowledge, a fundamental investor can  purchase favourite stocks and see quick gains as market prices rise to catch up with the intrinsic value of the stock.

Another crucial thing that Technical  Analysis of a stock can tell a fundamental investor is when a stock is overbought and ripe for a pullback. That can be determined by a stock’s relative strength indicator, or RSI, which measures both the direction and velocity of a stock’s move. Further a fundamental investor could match a stock’s RSI with something else, like the RSI of its sector or a larger index and also look historically to see if past moves in the RSI have translated into the moves they expect. Typically when a stock gets overbought, it’s ripe for a pullback. The inverse is also true. This knowledge helps a   fundamental investor accumulate more of his/her favourite stock by buying when low, selling when high and then buying back more of the same stock at a pullback.

Then there is the much dreaded “head-and-shoulders” pattern. An investor ignores this reliable sell signal to his/her peril. The opposite is also true.A reverse head-and-shoulders pattern is among the most bullish of patterns that technicians seek. When fundamental investors see a reliable pattern in a chart, they should take heed to guarantee best returns on their portfolio.

Then there is the cup and handle pattern when fundamental investors could buy more of their favourite stock as technical analysts hold that  the stock that has just completed a cup-and-handle pattern is ready for another leg higher.

Thus after working out the intrinsic value of their favourite stocks and then borrowing some of the gyan of technical analysts, a fundamental investor can cut down on the wait times for the market prices of their stocks picks to level with their calculations and in the meantime do a limited amount of trading to increase their stake money.