Today's Quote: “The world does not pay for what a person knows. But it pays for what a person does with what he knows." - Laurence Lee.

Fundamental versus Technical, the finale…

While the discussion of why technical analysis is superior to fundamental analysis could go on for a long time, we just wanted to give you an insight into the way we look at the market and why we feel charts are the only way to view price action in the market. So today will be the final discussion of this topic before we move on to a new one tomorrow.

If you are still debating this issue after the arguments we discussed this week, here is another reason to use technical analysis instead of fundamental analysis. How did the fundamentals look on Enron back when it was trading over $100.00? That question can only be answered in one way. They looked good; very good. So what happened to Enron? The numbers were fake; as in made up, lies.

Do you think that was an isolated incident? You already know the answer to that. MCI and dozens of other big companies were caught, and many others have been and are being investigated. Of course, that does not even count the countless companies that don’t get caught; or at least have not as of yet.

Let’s look at one other issue before we pose the final question to you. Let’s be supportive of companies for a minute and assume that some companies do try to be honest and report accurate numbers. Can’t we trust those numbers? Even if you are not an accountant here are some facts that we can all understand. The rules and regulations for so many things companies report are still being formed. There is no consensus on how much variation there can be in reporting many complex transactions in businesses. Employee stock options, sales of some assets and purchase/sales of other companies have such a wide range of ‘acceptable’ accounting measures that any companies’ income statement can look drastically different just by how they chose to report that transaction.

So the final question is, if a fundamental person believes that a final correct price exists for every stock and can be determined by the company’s income statement and balance sheet, how can you fix that final price when the beginning numbers are no where near accurate? One cent differences in income make fundamentalists change the value of a stock drastically, yet the ‘one cent’ difference may be incorrect by nickels and dimes.