Stock Technical and Fundamental Analysis

Stock Market Technical and Fundamental Analysis for Today (Week 14-18 Oct)

The Dow Jones and Nasdaq 100 have an important week ahead of them with a heap of upcoming earnings from some of the country’s largest and most influential corporations. Ranging from Chipotle to Lockheed Martin, the quarterly results can potentially offer significant influence over the indices as 40% of Dow Jones components are slated to report. Consequently, the Industrial Average and the tech-heavy Nasdaq will look to ride the euphoria – or despair – brought about by each report.

Though U.S. corporate earnings thus far have been relatively upbeat, after Morgan Stanley (NYSE:MS) on Thursday became the latest big bank to buck concerns about weak growth, technicals on U.S. indices increased chances of topping out.

Also, economic data flipped negative once again. U.S. retail sales disappointed, and the International Monetary Fund (IMF) lowered, yet again, its projections for global growth this year from 3.5% to 3%. Traders will also be mulling the data from China, released early Friday, which showed GDP had slowed to 6% in the third quarter, with limited pick-up from domestic demand, but factory output had improved and retail sales held up.

Week ahead: stock technical and fundamental analysis (Dow Jones Industrial Average - DJI30 Forecast)

Stock Market Fundamental Forecast

Last week, the U.S.'s third quarter earnings season kicked off, with major banks reporting mostly solid earnings versus depressed investor expectations, leading the group and most U.S. benchmarks, higher. Overall, U.S. equities eked out gains on a weekly basis but fell Friday with Boeing (NYSE:BA) plunging -6.79% on additional bad news for the U.S. aerospace giant. Microsoft's (NASDAQ:MSFT) losses on Friday allowed Apple (NASDAQ:AAPL) to take back the lead as the world's most highly valued company.

While earnings results and the corresponding price reactions are nigh impossible to predict, it would be presumptuous to argue against the Dow Jones when traders have pushed it to such levels. Admittedly, the Industrial Average has a laundry list of concerns, but price suggests the market is comfortable in dispelling those concerns in exchange for fresh all-time highs. In pursuit of those heights, the Dow Jones will look to earnings from Boeing, Caterpillar, 3M, Microsoft and other major components in the week ahead for an extra jolt to get across the finish line.

On a stock-specific basis, Caterpillar should be watched closely for insight into the status of global construction, often apparent in the company’s machine orders by region. An abrupt slowdown in purchases in emerging markets, particularly China, could erode investor confidence and ignite global recession fears. Thus, Caterpillar has the potential to have an impact on the Dow Jones beyond the fluctuations in its own share price. Another such company is Microsoft.

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Stock Market (DJI30) Technical Forecast

Technically, Friday’s trading erased four days of advances, on the highest volume since Oct. 2, when the index dropped 1.8 percent, after nearing record highs. For the week, the Dow retreated 0.2%.

Stock technical analysis is signaling more sideways movements in the markets, with DJI30 showing a large symmetrical triangle on the Daily chart. A breakout should bring a fast move up (exhaustion rally?), while a breakdown a fast sell of. 

The NASDAQ Composite slumped -0.83% at the end of the previous week, with Microsoft (-1.63%) leading tech firms lower. Technically, the price neared the neckline of a potential H&S top, whose development was accompanied by falling volume. 



Conclusions of Stock Analysis for Today

The world’s largest publicly traded company by market cap is scheduled to report on Wednesday, in an event that could significantly sway the Nasdaq 100. Mega-cap companies like Microsoft and Apple have become synonymous with the broader market by some investors – due to their weighting on the index and vast supply chains – and have been known to impact other markets. One such instance was the USDJPY flash crash early this year when Apple revised its quarterly outlook lower.

Evidently, market participants have afforded these companies significant influence which is partially why next week could prove to be a crucial moment for the US stock market. Alongside Microsoft, other tech companies like Amazon, Intel, Snapchat, Twitter and Texas Instruments are due to report. Each will offer insight into their unique corner of the tech industry, but their combined performances will likely decide the overall direction of the stock market’s reaction. If the first week of earnings was any indication, the season could prove to be a bullish catalyst, delivering the spark needed to drive the indices to new highs.

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Stocks Technical and Fundamental Analysis for Today (Week 14-18 Oct)

Politics remains the key driver for risk assets. Rising optimism pertaining to US-China trade talks and Brexit negotiations have lifted equity markets to close the week on a high note. However, while optimism have buoyed risk sentiment, we ask ourselves the critical question of “deal or no deal?”.

Stocks Technical Analysis - SP500 

In the event-driven backdrop, the S&P 500 has recovered from its recent drop as markets investors grow increasingly optimistic over a potential interim trade agreement between the US and China. If indeed an agreement is found, the S&P 500 would likely see a topside breach of the 3000 level with further buying in the index extending throughout the week.

sp500 live chart

Stocks Fundamental Analysis - SP500 

News, again, drives the US stock market and major stock indexes higher as optimism of a US/China trade agreement floods the news wires.  As we’ve been suggesting, the global markets continue to be news-driven and are seeking any positive news related to easing trade tensions and capital markets. We believe any US/China trade deal would be received as very positive news by the global capital markets – yet we understand the process of achieving the components of the “deal” would likely still be 6 to 24 months away.

Still, with the strength of the US economy and the potential that some deal could be reached before the end of 2019 setting positive expectations, the US stock market and major indexes rallied the last week.

Conclusions of Stock Analysis for Today

Our research team wants to highlight some very key elements related to stock technical price theory and technical analysis.  The weekly charts highlight what we believe is “key resistance” in the US major indexes and share our research team’s concern that the markets may be reacting to news more than relying on fundamental economic and earnings valuations.

What is stock analysis?

Stock analysis is the method used by a trader or investor to examine and evaluate the stock market. It is then used to make informed decisions about buying and selling shares. Stock analysis can also be referred to as market analysis, or equity analysis.

Stock analysis can be used to gain an insight into the economy as a whole, the stock market, a specific sector or an individual stock.

Stock analysis is based on the idea that by studying market data from the past and present, traders can create a methodology for choosing which stocks to focus on, as well as a way to identify entry and exit points for their trades.

How to use fundamental analysis for stocks

There are a few steps to follow if you want to pick stocks using fundamental analysis. Firstly, keep in mind that fundamental analysis for stocks centres around estimating a stock’s intrinsic value. This means you should analyze both qualitative and quantitative aspects of the economy, industries within the economy and the individual companies that make up the industry.

Qualitative factors to consider include:

  • Company news

News relating to the company you’re looking to invest in can cause stock prices to rise or tumble. This is because good news often causes individuals to buy stock, while bad news causes them to sell the stock. This affects supply and demand and, ultimately, the share price.

  • Personnel changes

Personnel changes, including management restructures, are extremely relevant to those looking for stocks, because it affects the market’s perception. The business’s reputation could be affected by any personnel changes, which has a direct impact on stock prices.

  • Financial events

It’s important to take note of financial events when picking stocks, as these can cause market uncertainty and heightened volatility. Forexfactory Economic Calendar events include interest rate decisions, scheduled changes in management, and large-scale events such as Brexit.

Quantitative factors include:

  • Earnings releases

Traders and investors should keep a close eye on changes in company earnings as part of their fundamental analysis. If company earnings drop and the share price does not adjust to the new earnings level, the stock price might not reflect true value.

  • Balance sheets

A company’s balance sheet will list all its assets and liabilities. A stronger balance sheet generally means a strong stock price, because it reflects earnings potential. As mentioned, earnings also directly affect stock prices.

  • Dividends

Dividends are a portion of a company’s profit that it chooses to return to its shareholders. They are one of the ways a shareholder can earn a passive income from a stock investment without having to sell shares. You could use dividends as a deciding factor when choosing stocks, because they indicate that the company is profitable and that there is a good possibility of future earnings.

  • Ratios

Qualitative factors can be measured by means of various ratios. Fundamental analysis ratios include:

Price-to-earnings (P/E) ratio, which measures a stock’s value by showing you how much you would have to spend to make $1 in profit. P/E ratio assists in comparing the value of one stock in a sector with another. It can also be used as a guide to determine whether a company is currently overvalued or undervalued compared with its historical averages
Debt-equity ratio (D/E), which measures a company’s debt against its assets and gives you insight into how the company is performing relative to its competitors. A low ratio could mean that the company gets most of its funding from its shareholders. It’s important to note that a ‘good’ or ‘bad’ ratio depends on the industry
Return on equity (ROE), which measures a company’s profitability against its equity, expressed as a percentage. It shows you if the company is generating enough income by itself relative to the amount of shareholder investment
Earnings yield, which measures earnings by dividing the earnings per share (EPS) by the share price. Earnings yield is also a value indicator – the higher the earnings yield, the more likely it is that stocks are undervalued
Relative dividend yield, which measures a company’s dividend yield compared to that of the entire index. If you’re looking to buy stock, you should consider the relative dividend yield because it can show if stocks are overvalued or undervalued compared to competitor stocks
Current ratio, which measures a company’s ability to pay off debt. It shows if liabilities can be adequately covered by the available assets. There is a link between this ratio and the stock price. The lower the current ratio, the higher the likelihood that the stock price will continue to go down
Price-earnings to growth (PEG) ratio, which measures the P/E ratio compared to the percentage growth in annual EPS. If you are deciding on which stocks to pick, you should consider the PEG ratio because it could give you an indication of the stock’s fair value
Price-to-book (P/B) ratio, which measures the current market price against a company’s book value. A ratio higher than one often indicates overvalued shares

How to use technical analysis for stocks

Technical analysis for the stock market is completely different from fundamental analysis – when picking stocks using technical analysis, you should focus on the stock’s price data and movements. This includes trends and patterns that may indicate the future movements of the market. There is a wide range of technical indicators you can use when conducting technical analysis. Your chosen technical strategy will ultimately depend on your trading style.

Categories:  Investing