Technical vs. Fundamental Analysis

The technical analyst tends to look for trends and patterns in charts and believe they can predict a company movement based on that information.

The way to read charts is relatively simple but you will find it is a great tool to assist you in making a much more informed decision. There are 4 phases to consider when reading a chart, you should look at the 3 and 6 months charts and try to determine which phase it is out of the 4. Then combine it with the fundamentalist to make a final determination.

Phase One:
Identifying this phase is the key to ultimate success. This phase is identified by a steady support level on a stock and heavy increased volume. In other words, it is not going down below a certain price and has flat line when you look at the charts and the volume is a lot heavier than the 50 day moving average. In the best of world, this is the phase you want to get in on. Normally, the increased volume is the insiders buying more shares because of big news they are about to reveal thus why the stock price has stabilized. Just before the news is reveal the next phase will start. The climb phase.

Phase Two:
The phase is exactly what you would expect; the stock is starting to climb much faster than it has in the last few months. Early during this phase is when the average investor, non insider, is going to make money. If you have been privy to some solid due diligence then this is how you could actually purchase shares within 30 days of the stock taking off. If you purchase shares in the middle of this phase you more than likely will only see a moderate profit before it starts to churn. The late part of this phase is the wrong time to purchase this stock; you will more than likely be buying when others are selling which is the start of the next phase.

Phase Three:
As stated about the late climb phase, late investors are buying and early investors are selling. The price climb has all but come to a halt. You may believe that the company will keep going up and up and up, but very rarely does that happen that the company is overcapitalized and will keep pouring more valuation in its company (stock). You have to remember one thing the stock market is how companied raise capital from the public that they don t have to pay back. Many companies are waiting to see the churn and the price climb slow down this is an indication to them that the public well is drying up and they should take profits themselves. Obviously, they don t want to take every dollar out but believe me they are not going to miss this opportunity to take profits and when they do the price tumbles

Phase Four:
This phase is obvious the same intense climb in price will eventually be followed by a decline. How much of a decline depends on just how much the company needed to raise in the first place and how quickly the public jump on buying their stock. You will notice that a new support level will be established and the price will probably hover around that price for a while pending further news or filings. If you purchase this stock late in the climb phase this is going to be a painful period for you. Normally the first new support level will be between the middle and late purchase price of the phase two. Say a stock started at $1 a share insiders bought it up to $1.50, started to run and peaked at $3.50. Between $2-$3 is the middle of the phase two and is probably where the price will settle after the tumble.

Fundamentals:

Fundamentalists tend to need to know the numbers and facts and see or hear them from and individual or trusted paper source. Use these questions as a basis for you fundamentals
Knowledgeable investors can save time, and get excellent results by asking the right questions. Can you answer the following questions for the stocks in your portfolio?

Is the company making money?
What is the stock’s current price?
What is the stock really worth?
Is the stock over or undervalued?
Is its price rising or falling?
Is this stock for Prudent, Aggressive, Conservative or Speculative investors?
What s my exit strategy?

The answer to these questions will give you a basis for your due diligence.

Here are some questions, in addition to any you are curious about, you may want to ask the investor relations representative from the company. Your comfort with their answers will determine your faith in the penny stock you choose.

What does the company make or provide?
Is the company making money?
What are their forecasted earnings per share?
What is its forecasted earnings growth rate?
What is your estimated growth to P/E ratio?
When do you plan to become a reporting company?
Can we expect to see dividends?
Can we expect to see any positive press releases on company findings?

As you can see we are not trying to bombard you with information about the 2 style of analyzing but giving you a simple way to determine how you can make better choices in the market by having more tools to arm yourself with.