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
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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. |
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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.
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