By Stockpickr Guest Columnist Ira Krakow
There are two basic schools of stock analysis: fundamental-based analysis and technical-based analysis.
Fundamentalists research news, analyze financial statements and SEC filings to unearth reasons that the company's stock is either too low or too high. If the price is too low, the strategy is to buy and hold until the market realizes the company's intrinsic value. If the price is too high, the strategy is to sell before the market socks our portfolio with losses. In either case, fundamentalists believe that their analytical skills add value, the so-called "alpha," because the market is not always right.
Market technicians, on the other hand, believe that The Market Knows All, that price movements, as reflected in the stock chart, incorporate all knowledge about a company. They see the market as a giant
auction. If there are more buyers than sellers, the price rises; otherwise, the price falls. The alpha is that there is no alpha.
But neither approach gives us the whole picture. A stock's fundamentals, such as a company's revenue or profit margin, can be great, while its technical action, as reflected in its stock chart, can be lousy, or vice versa.
Let's look at the auto sector, which has also had its share of news.
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