Blend Fundamental and Technical Analysis

By Matt Krantz

While fundamental and technical analysis couldn’t be more philosophically opposed to each other, there are ways to marry the two approaches. In fact, the shortcomings of both fundamental and technical analysis, in some ways, balance each other out.

A few ways to potentially boost your fundamental analysis success using techniques from technical analysis include:

  • Cutting your losses: One of the fatal flaws of many pure fundamental analysts is stubbornness. Fundamental analysts urge investors to do their homework, buy a stock and hold on for dear life no matter what happens. But during the ugly bear market that kicked off in 2007, many fundamental analysts learned the hard way that even stocks with solid fundamentals can go down by dramatic amounts. Investors must also be flexible to understand that companies — and their fundamentals — are changing. Fundamental analysts need to understand that a stock that was attractively priced a year ago may no longer be as attractive.

One thing technical analysts are often very good at is cutting their losses. When technical analysts buy a stock, they often have a stock price in mind that they’ll sell at if things go south. Knowing how to cut your losses short can be vital when investing in individual companies’ stocks, which is a risky endeavor. Some technical analysts suggest investors sell a stock if it falls 10 percent or more from their purchase price.

  • Improving your timing: Some fundamental analysts like to buy stocks and just hang on. But sometimes stubbornness can be expensive. For instance, you might be sitting on a stock that’s not moving, while the rest of the stock market charges ahead. Technical analysis attempts to help you avoid sitting still when there’s money to be made in other stocks.
  • Helping you to spot manias: Because technical analysis is so focused on what other investors are doing and what they’re paying for a stock, it can help alert a fundamental analyst to manias and bubbles. Knowing when other investors are getting overly enthusiastic about a stock can be a good clue to explain why a valuation might be getting overly lofty. A stock that it spiking and looks like a “tree growing to the sky” on a stock chart is a tip-off and a reminder to fundamental analysts to pay attention to traditional valuations measures.

Using stock prices as your early-warning system

Even a lifelong fundamental analyst, who looks at technical analysis as glorified palm reading, may still benefit from the art of reading charts. When forecasting how a company’s revenue or earnings might look like a year from now, fundamental analysts need to take educated guesses at what shape the economy or the company’s industry will be in.

Watching stock prices can be useful in helping a fundamental analyst form an opinion about the future. Because stock prices tend to foreshadow economic reality three, six, or nine months in advance, paying attention to stock price movements may tell fundamental analysts something about what the economy might look like.

Monitoring industry sectors may be especially helpful. If you start noticing shares of companies that make durable goods, or high-ticket items like houses and cars, falling, that may very well be a tip-off that investors expect the economy to slow. That’s useful information you might consider when forecasting a company’s future earnings growth.

Looking up historical prices

Even if the technical analysis tools discussed here seem a little too, well, out there for you, you can still benefit from charts and historical stock price data. You might find yourself wanting to know what a stock price was in the past — so you can calculate a company’s valuation from years past. Perhaps you want to look up your cost basis in a stock, or how much you paid for it when you originally bought it. You’ll need to know your stock basis to measure your capital gain or loss for tax purposes.

You may also want to know what a stock price was, say, a year ago so you can measure how well or poorly a stock has done.

When you want to look up a historical stock price, it’s time to break out the stock price chart. Most online websites let you plot stock prices going back in history so you can see what a stock price was in the past. All the major financial websites let you pull up historical stock charts.

Because so many investors ask for tips on looking up historical stock prices, here’s one way to accomplish this task. If you’re looking to get a stock’s price in the past, here’s how you’d do it using Yahoo! Finance:

  1. Log onto Yahoo! Finance.
    Enter finance.yahoo.com into your Web browser.
  2. Enter the stock’s ticker symbol.
    Enter the stock symbol on the left-hand side of the page. Click on the name of the company when it pops up.
  3. Launch the historical stock quotes engine.
    Click on the Historical Prices option on the left-hand side of the screen.
  4. Choose the date you’re interested in.
    Scroll down until you see the date in history you’d like the stock’s price on. The system will tell you the stock’s high, low and closing price on that day.