Are good fundamentals more important then moving averages?

Question

Considering the company is new, it may be impossible to see patterns to rate.

Answer 1

Over what time frame?

It's the similar question to "Where is the Dow going?" Would that be in the next few minutes, few days, or few years? All three could be different answers.

I can show you good companies with good fundamentals, good products, good management, etc., but their stock price is going down. Similarly, I can show you horrible companies that have nothing going for them and not even a profit, yet their stock price is going up (the Internet blowoff at the turn of the century comes to mind - the Dot.com era).

It may take years for the fundamentals to come in line with price of a stock. To me, fundamentals have nothing at all to do with immediate or near-term price direction. I can find no correlation, unless you look outside of one year.

So what is your time frame? You looking to make a killing over the next few weeks or months, or are you buying this for your retirement fund?

Moving averages are proxy for the trend. Yet they tell you nothing at all about future price more than a few days or weeks out. Moving averages tell you immediately when the trend has changed, where fundamentals have no such correlation. Moving averages smooth out price fluctuations, whereas fundamentals either do nothing of the sort, or actually cause the fluctuations.

You are trying to compare apples and oranges.

Answer 2

An old adage on Wall Street is "a chart is worth a thousand earnings forecasts". Most of the time investors correctly forecast the future of a company or a business sector and either bid up or bid down the stock ahead of the facts. Just look at a chart of Toll Brothers(TOL)and see it peak at 75 last July and then sells off to about 28 now as the terrible housing news hits the wires. When housing news gets good again you will see that TOL will be already way up, once again ahead of the news.

Answer 3

This brings up the two key ways to analyze stocks, fundamental and technical analysis. Fundamental analysis looks at how the company is performing and also compares how it's performing with its peers and the overall market. Technical analysis doesn't care about the fundamentals of the company but only looks at the price movement of the stock. To make money in the market both methods should be used. In my opinion, an excellent resource to learn about both methods is the Investors Business Daily (www.investors.com).