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Fundamentally Sound Versus Price Ready

June 17, 2014



The fact that a company has met all of your fundamental criteria does not mean that you should necessarily run out and buy it right away. Even if your fundamental analysis of the company is spot on, to make big money, your analysis of investor perception also needs to be accurate and timed correctly.

 

Often a company will deliver one or two great quarterly earnings reports while the stock is still in a correction or consolidation. The stock price may have already run up in anticipation, and it simply needs time to digest the advance while earnings catch up, or perhaps the overall market is in a correction, holding it back. Be patient.

 

Keep the stock on your radar and wait for its price and volume characteristics to set up properly. The key to making big money in stocks is to align supporting fundamentals with constructive price action during a healthy overall market environment. You want all the forces behind you: fundamental, technical, and market tone.

 

A stock can be fundamentally sound but not price-ready, meaning that supply and demand dynamics have not yet established the line of least resistance. A good company is not always a good stock. It’s important that you learn to differentiate between the two. It doesn’t really matter what you think about a stock. What matters is

what big institutions think, because they are the ones that can move a stock’s price dramatically. Therefore, it’s your job to find the companies that institutions perceive as valuable.

 

After Dick’s Sporting Goods (DKS) issued positive guidance in early 2003, a strong response in its stock price put the stock on my watch list. Once it delivered the strong earnings promised and the stock held up technically, I moved its status up to buy alert. A few weeks later, constructive price action forged the setup I was waiting for, and I purchased the stock as it emerged from a proper consolidation.

 

 

Excerpt from Trade Like A Stock Market Wizard by Mark Minervini (McGraw Hill Publishing –2012)



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