Forum Archive Index - April 2004

["Woody deJong" <solarmax@optusnet.com.au>]

 

 

 

 

 

You know Snoopy  ( and litter )  I have been a pure TA trader all my trading life, up until as of late I have never even bothered with the ‘So called ‘Fundamentals. However the more I study the Fundamental indicators used by FA Traders the more I discover our similarities.  I am starting to believe that FA analysis is TA ( a rose by another name ) Here is a yearly PE/Ratio chart of the S&P500 group of stocks. It has an Open,High,Low Close. You look at it as a mathematical equation; I look at it as a geometrical equation.

            You have the company reports on their weekly, monthly, yearly etc performance. These can also be represented graphically, with an open, high low close chart.

You have the Beta Coefficient (another chart) The Shorting Interest (again) The Put/Call Ratio (also). Volume. Every Fundamental piece of information I have been able to obtain can be represented graphically.

Support/ Resistance lines that are used intensely by TA traders are also areas where FA Traders see value in buying a Share (Support) and calculate a profit taking area (Resistance)

Are we just kidding ourselves or is it really ( viva la difference )  If you buried your FA Bone in the backyard and dug up a TA bone instead would you still gnaw on it ? Would you recognize it as such?

I am doing a ‘Major Back flip ‘ here but I am now seeing that with today’s technology and with the information available I now feel foolish not to use ALL forms of analysis to achieve my goals.

So perhaps we can bury an FA and a TA bone and dig them up at will in any order.

 

Woody

 

 

 

 

Below is the SP500 price earnings ratio (commonly referred to as the "PE ratio" or the "P/E ratio") since 1943. You can see the levels we are at now are still very high compared to historic levels.

The PE ratio is one of the most widely watched measures of valuation for both the stock market as a whole and individual stocks. Many people use it to determine whether the market (or a given stock) is "expensive" or "cheap". The calculation is very simple. You simply divide the price by the yearly earnings. One easy way to think of it is the P/E ratio is really just equal is the price divided by earnings... so:

 P/E ratio = Price/Earnings

For instance, on 10/01/01 the SP500's closing price was 1038.55. Its cumulative earnings for the 500 companies in the index are $36.79. So the P/E ratio is calculated as 1038.55 / 36.79 = 28.23. This means that if you are investing in the SP500 via a stock index fund, you are paying $28.27 for each dollar of earnings that those 500 companies will have this year.

The PE ratio does not work very well as a timing device, but it can give you some idea of the whether the market is "cheap" or "expensive". And as you can see from the above chart, it is definitely not cheap right now, even after the large losses that the market has suffered.