There is no shortage of analysis for anyone interested in investing. A search for the term “stock market analysis” turned up 16 million hits on Google. The majority of stock market analysis can be lumped into three broad groups: fundamental, technical, and sentimental. Here’s a close look at each.
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 particular 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 future 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 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.
FULL DISCLOSURE: This is my favorite type of stock market analysis, although I do view some fundamentals.