From the May 01, 2010 issue of Futures Magazine • Subscribe!

Equities: Blending technical and fundamental analysis

Due to the RSI indicating an overbought condition, we may not want to get in BP immediately. One approach would be to wait for the RSI to return to 50 before establishing half of a position. Then if the long-term bullish signals persist, we could invest the other half when a dip back below the 50-day SMA signals a short-term buying opportunity.



Marathon Oil is charted in “Sideways swing”. Here’s a quick analysis of what we see for MRO:

1) The strength on MRO’s uptrend seems to be wearing off. Even though the 50-day SMA is holding above the 200-day SMA, the share price has fallen below its 50-day. MACD has recovered after dipping into negative territory in the early part of December. The recent decline in MRO threatens to push the MACD below its moving average.
2) The area shaded green is generally in line with the area shaded red under the CMF panel. This suggests that buying pressure and selling pressure on MRO are about equal and does not provide a decisive verdict.
3) The RSI reading of 44.26 is well within normal boundaries, suggesting neither an overbought nor an oversold condition.

MRO’s technical picture is not as strong as BP’s, requiring a more flexible approach. The chart shows that MRO has significant support between $31.50 and $30.50 near the 200-day SMA.
One tactic could be to invest 50% of the final position when MRO visits the lower end of this support range. Investors may choose to invest the other 50% only when the technical picture on MRO stock improves.
Another tactic is to wait for the technical picture to improve before committing any funds to MRO. In case MRO does not oblige and moves above the 50-day, and the technical picture improves along the way, the target amount may be invested in this stock.

Don’t forget the sale

This article has demonstrated how technical analysis can be used to supplement the fundamental assessment of a company. Ultimately, that technical analysis can help to make trading decisions. These analyses also can be combined when making sale decisions, as positions are unwound.
By analyzing both the technicals of the stock and the fundamentals of the company, investors can get a comprehensive picture and reduce their chances of being surprised.

By spreading buy and sell decisions over wider periods and price points, investors can seek to earn higher risk-adjusted returns.

Sam Subramanian edits AlphaProfit’s investment newsletters and investing blog, Money Matters. He can be reached at sam_subramanian@hotmail.com

<< Page 2 of 2
Comments
comments powered by Disqus