Types of Stock Market Analysis
Three approaches to analyzing the market.
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 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: Sentimental analysis attempts to measure the market in terms of the attitudes of investors. Sentimental analysis starts from the assumption that most 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 most professional market watchers expect a stock price to trend higher, sentiment analysts may look for prices to disappoint the majority and trend lower.
Regardless of analysis type, 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.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional 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.
Citations
1 - investopedia.com/terms/m/marketsentiment.asp [4/18/19]
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.