The majority of stock market analysis can be lumped into three broad groups: fundamental, technical, and sentimental. Here’s a closer look at each.
The goal of fundamental analysis is to determine whether a company’s future value is accurately reflected in its current stock price.
Fundamental analysis attempts to estimate the value of a stock based on a variety of factors, such as the current finances of the company and the prevailing economic environment. Fundamental analysis also may include speaking with a company’s management team and assessing how the company’s products are received in the marketplace.
When a fundamental review is complete, the analyst may decide the stock is an attractive opportunity because the market has underestimated its prospects. The analyst also may determine the stock to be a “hold,” or a “sell,” if the value is fully reflected in the price.
Technical analysts evaluate recent trading movements and trends to attempt to determine what’s next for a company’s stock price. Generally, technical analysts pay less attention to the fundamentals underlying the stock price.
Technical analysts rely on stock charts to make their assessment of a company’s stock price. For example, technicians may look for a support level and resistance level when assessing a stock’s next move. A support level is a price level at which the stock might find support, and below which, it may not fall. In contrast, a resistance level is a price at which the stock might find pressure, and above which, it may not rise.
Sentimental analysis attempts to measure the stock market in terms of the attitudes of investors. Sentimental analysis starts from the assumption that the majority of investors are wrong. In other words, that the stock market has the potential to disappoint when “masses of investors” believe prices are headed in a particular direction.
Sentiment analysts are often referred to as contrarians who look to invest against the majority view of the market. For example, if the majority of professional market watchers expect a stock price to trend higher, sentiment analysts may look for prices to disappoint the majority and trend lower.
Which approach is best? There is no clear answer to that question. But it’s important to remember three things: Past performance does not guarantee future results, actual results will vary, and the best approach may be to create a portfolio based on your risk tolerance, time horizon, and goals.
Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
For more insights and resources, be sure to sign up for our Weekly Market Commentary. Follow our YouTube channel where we regularly post our Epic Market Minute videos. Follow us on LinkedIn, or like us on Facebook. And as always, please don’t hesitate to reach out to a dedicated service professional at Epic Capital.
If you ever have the inkling to manage your investments on your own, that inkling is worth reconsidering. Do-it-yourself or DIY investment management can be a bad idea for the retail investor for myriad reasons. Getting caught up in the moment. When you are watching your investments day to day, you can lose a sense … Continue reading “Why DIY Investment Management Is Such a Risk”
If you are an executor to an estate, you must carry out your duties responsibly. Fulfilling these duties is not only a measure of your ability, but a measure of your character.You can approach these tasks methodically. In fact, it is probably best if you do. Here are the common steps required of executors, before … Continue reading “An Executor Checklist”
Addressing the potential threat of long-term care expenses may be one of the biggest financial challenges for individuals who are developing a retirement strategy. The U.S. Department of Health and Human Services estimates that 69% of people over age 65 can expect to need extended care services at some point in their lives. So, understanding … Continue reading “Understanding Long-Term Care”
One constant in life is change. During the past year and a half, we have experienced more change than any of us bargained for. Change is disruptive—but also brings opportunities. For investors right now, there is no shortage of changes to think about, but those changes may set the stage for the next leg higher … Continue reading “Market Update: Change May Bring Opportunities”
Financial markets tend to function best when they have clear, strong leadership. When there’s concern about who’s the boss, markets can struggle. Jerome Powell is finishing his first term as Fed Chair in February 2022. Until the past few weeks, Wall Street overwhelmingly believed he would be nominated to a second term by President Biden.1
Epic Capital provides the following comprehensive financial planning and investment management services: Learn More >