Types of Stock Market Analysis

The majority of stock market analysis can be lumped into three broad groups: fundamental, technical, and sentimental. Here’s a closer look at each.

Fundamental Analysis

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 Analysis

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

Sentimental analysis attempts to measure the 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. (1)

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 time horizon, risk tolerance, 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.

Citations

1 - investopedia.com/terms/m/marketsentiment.asp [4/18/19]

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.