Combining Technical Analysis

Technical Analysis works best when the Intelligent Investor combines it with the Analysis of Financial Statements. By itself, Technical Analysis is not very accurate. It is like flipping a coin. During a bull market, Technical Analysis may trigger a sell signal, but yet stocks move higher. During a bear market, Technical Analysis might trigger a buy signal, and yet stocks continue to fall.

Technical Analysis is very useful when the Intelligent Investor is looking to buy stocks of a company that has a Durable Competitive Advantage. It is also useful when selling out of companies that do not have a Durable Competitive Advantage. When the P/E Ratio of a stock is way above 40 or when the stock price becomes too expensive, Technical Analysis can be useful here as well. Given these conditions, use it as a tool to find an entry or an exit point.

 

Conditions when to use Technical Analysis

 

Using Technical Analysis to Purchase Stock of a Company with a Durable Competitive Advantage

 

Example 1

IBM is a company with a Durable Competitive Advantage. On October 2014, it's stock price plunged after they reported dismal earnings and a bleak forecast. At $155 per share, the stock is trading below the Bollinger Lower Band. The MACD Oscillator is rising. The Volume is decreasing so it may indicate a change of Trend to the upside. Based on Technical Analysis, the stock may be oversold.

IBM Combining Technical Analysis
Source: Thinkorswim by TDAmeritrade

 

Example 2

Exxon Mobil, another company with a Durable Competitive Advantage. On October 2014, it's stock price plunged after meek reports concerning the price of oil. At less than $90 per share, the stock is just traded below the Bollinger Lower Band. The Relative Strength Index (RSI), Fast Stochastic (FS), and Slow Stochastic (SS) Oscillator is below the lower limit. The Volume is decreasing so it may indicate a change of Trend to the upside. Based on Technical Analysis, $90 could be a good entry point.

Exxon Mobil Combining Technical Analysis
Source: Thinkorswim by TDAmeritrade

 

Using Technical Analysis to Sell Stock of a Company without a Durable Competitive Advantage

 

Example 3

Tesla is a revolutionary electric car company. But as of the year 2014, it does not have a Durable Competitive Advantage. Cars isn't something people buy everyday. Tesla is a lovable company. But at close to $300 a share, the stock price is too high. The price just came from the Bollinger Upper Band. There is also divergence between the price and the MACD; the price heads higher, yet the MACD Oscillator goes lower.

Tesla Combining Technical Analysis
Source: Thinkorswim by TDAmeritrade

 

Using Technical Analysis to Sell Out of an Expensive Stock

 

Example 4

Netflix, love the service but not the price. Throughout the year 2014, the P/E Ratio is above 100 which is really pricey. At close to $500 per share with earnings of only $3.76, this stock is just way overbought.

Netflix Combining Technical Analysis
Source: Thinkorswim by TDAmeritrade

 

My Financial Analysis of Stocks

  • Looks Like Capitulation in Viacom (VIAB) Capitulation is when large institutional investors give up on a stock and sell all of their holdings in that stock. Capitulation is a sign of a bottom for a stock ...
    Posted Nov 17, 2017, 10:38 AM by Intelligent Investor
  • IBM's Fortunes Finally Turns Around Today Warren Buffett purchased IBM shares in the year 2012 worth billions of dollars. Yet the stock has pummeled and has been pounded downwards for the past 5 years. The company ...
    Posted Oct 20, 2017, 1:58 PM by Intelligent Investor
  • Exchanged AT&T (T) for Time Warner (TWX) and Dumped Hilton Worldwide (HLT) I exchanged AT&T (T) for Time Warner (TWX). Their merger currently gives TWX a 6% premium. AT&T is offering $107/share for TWX. Time Warner is currently priced ...
    Posted Sep 1, 2017, 4:36 PM by Intelligent Investor
  • My Stock Holdings 2017 View Analysis: My Stock Holdings 2017Hilton Worldwide Holdings (HLT) split into 3 companies. So we now own the following 3 Hilton companies:1) Hilton Worldwide Holdings (HLT)2) Hilton ...
    Posted Aug 28, 2017, 6:46 PM by Intelligent Investor
  • Repurchased Apple After Warren Buffett Confirms He Purchased it As a rule-of-thumb, if an investment has a Return on Equity (ROE) of greater than 30%, it means the company has a Durable Competitive Advantage. Apple's Return ...
    Posted Jun 5, 2017, 12:35 PM by Intelligent Investor
  • Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most ...
    Posted Mar 1, 2017, 6:12 PM by Intelligent Investor
  • Warren Buffett's 5 Best Investing Tips 1) Don't buy or sell based on the headlines.2) Don't try to profit from bubbles.3) Put your emotions aside.4) Always invest in productive assets.5 ...
    Posted Aug 19, 2017, 4:26 PM by Intelligent Investor
  • Sold Wabco (WBC) to Raise Cash in Case there is a Recession The signs of a recession are getting stronger so I've decided that I needed to raise cash. Out of all the stocks I own, Wabco (WBC) seems to be ...
    Posted Sep 7, 2016, 10:22 AM by Intelligent Investor
  • Sold Chicago Bridge and Iron Chicago Bridge and Iron (CBI) comprise 2.5% of my overall portfolio. I first bought this stock at around $46/share. I sold it at $34. So, I basically took ...
    Posted Aug 25, 2016, 9:50 AM by Intelligent Investor
  • 5 Things to Keep in Mind for Entrepreneurs Interesting article from Mark Cuban.CNBC Article
    Posted Mar 18, 2016, 9:54 AM by Intelligent Investor
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