Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

USING FUNDAMENTALS TO COMPLEMENT TECHNICAL ANALYSIS

Technical analysis, when used correctly, can serve to mirror fundamental strength. Certain price patterns that breed consequential results reflect, in essence, the psychology of the participants—both long and short. In many circumstances, these technical patterns also reflect the strength or weakness of the underlying fundamentals of companies. Therefore, in the process of technical analysis, I believe it is possible to discover candidates that possess the market's leading fundamental values by finding the uniquely corresponding chart patterns that reveal these tendencies.

However, stock price performance does not always reflect strong fundamentals. To trade based solely on fundamental analysis can be dangerous, yielding inconsistent success. Price is king, and technical analysis that uncovers stocks heralding higher prices is always preferred. Trading such stocks—that also score well in fundamental analysis—will further ensure successful trades.

Pull-Back Type I

Introduced in Chapter 8, the technical chart patterns that the Pull-Back Type I strategy uncovers echo the fundamental strength commonly associated with strong stocks while at the same time identifying pivot-point trading opportunities where pull-backs to value reengage raging momentum, leading to a resumption of price appreciation.

These uncovered treasures consist of stocks that have pulled away from their 52-week highs and are hugging their 50-day EMA as they consolidate. ...