The core idea of this post is to analyze fundamentals just like price action and see if that provides any additional value. Recently I added this functionality to my software for fun but now I think it might be worthwhile to investigate further for longer term trades.
So which fundamental metrics do we use? Following are two fundamental metrics this post uses -
- Rolling (4 Quarters) Earnings Per Share
- Rolling (4 Quarters) Price/Sales Ratio.
- When EPS trend is down, the price action is either down or side ways. So if EPS trend is down (like in AMZN) but price trend is up, something funny could be going on like the stock running on stories/perception.
- At bottoms, the EPS trend seems to act as leading indicator. Near tops, the price is the leading indicator.
- Inclusion of EPS trend in price action chart provides a better picture of the context.
- Caveat - I have not yet verified quantitatively the above assertions are valid.
AMZN chart is interesting i.e., Rolling EPS trend is down (since ~ 2011 Q1) but the price trend is sideways to up. In AMZN past history (and other charts included in this post) there were no instances where EPS downtrend is down and price has sustained uptrend.
MSFT chart is also interesting i.e., its Rolling EPS trend was doing pretty well from 2006-2012 but its price trend is sideways. Market not recognizing its value? I can imagine reaction from TA folks to this question :-).
Note - Readers proficient in fundamental analysis are welcome to suggest other metrics for future posts. The requirement is I should be able to construct the metric from the data available in the Annual/Quarterly reports.
Question - What would be a good metric(s) to analyze markets (like SP500) from fundamental perspective? Any suggestions are welcome.
Wish you all good health and good trading!
Disclaimer: The above is not a recommendation. Please do your own due diligence. Also I change my trading opinions often as new information/insights roll in.
3 comments:
Nice perception and annotation. You explain each and every point very well. I am a true followers of your. Thanks..
Hi Peter -
Thanks for the kind words and for reading my blog. I saw your site. Looks Nice.
Best Regards.
Durg
I saw a website www.drstock.org
You may value stock prices. If you are interested in, you may visit it.
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