1. White candlestick – White candlesticks or hollow candlesticks signal uptrend movement. These occur in different lengths; the longer the body, the more significant the price increase.
2. Black candlestick – Black candlesticks or filled candlesticks signal downtrend movement. These occur in different lengths; the longer the body, the more significant the price decrease.
3. Long lower shadow – Long lower shadow gives a bullish signal. The lower wick must be at least the body’s size; the longer the lower wick, the more reliable the signal.
4. Long upper shadow – Long upper shadow gives a bearish signal. The upper wick must be at least the body’s size; the longer the upper wick, the more reliable the signal.
5. Hammer – A hammer shows a bullish pattern during a downtrend. The hammer has long lower wick and small or no body. Shaven head hammer shows a bullish pattern during a downtrend & a bearish pattern during an uptrend since it has no upper wick. The Hanging man hammer candlestick shows bearish pattern during an uptrend. It has long lower wick, small or no body; wick has the multiple length of the body.
6. Inverted hammer – Inverted hammer signals bottom reversal; however confirmation must be obtained from next trade. It may be either a white or black body. Shaven bottom inverted hammer signals bottom reversal, however confirmation must be obtained from next trade. It has no lower wick. Shooting star inverted hammer shows a bearish pattern during an uptrend. It has small body, long upper wick, small or no lower wick.
7. Spinning top white – Spinning top white gives a neutral pattern. It gives a normal view until seen with respect to the other candlestick patterns
8. Spinning top black – Similar to spinning top white pattern and gives neutral pattern but in black candlestick. Again becomes meaningful when sees in combination with other candlestick patterns
9. Doji – Doji is a neutral pattern with no body and only shadows, meaningful in combination with other candlestick patterns
10. Long legged doji – This is a type of DOJI but have long shadows. It signals a top reversal
11. Dragonfly doji – As in a normal Doji, there is no body and a Dragonfly Doji signals trend reversal since it has no upper wick and long lower wick.
12. Gravestone doji – Opposite to Dragonfly doji and signals trend reversal. It has no lower wick and long upper wick
13. Marubozu white – Marubozu denotes dominant bullish trades and continued bullish trend. It has no upper or no lower wick.
14. Marubozu black – Marubozu black denotes dominant bearish trades and continued bearish trend. It has no upper or no lower wick.

Related posts:

1. Candlestick Stock Chart Analysis – Introduction
2. MACD technical analysis
3. Technical analysis of stocks

These websites are a great way to see historic information going back to several years. And the best thing is that they are available online so that you don’t have to buy books or go to library. You can do analysis on any stock, read expert reviews, and see whether the institutions are buying or selling the stock which you are researching. Not only the financial details about the company, these websites also have recommendations from experts regarding buy, sell or hold on that particular stock.

You can see which stocks are at their peak and which are currently at their lows. The news about the companies is also displayed for easier access for the readers. For example, if you go to one of these websites and search on YHOO, you will get every possible detail about Yahoo including their financial details, its financial ratios like P/E ratio, its holdings with different mutual funds, their competitors, historical charts, news about YHOO etc.

People have their favorites and we have ours. Here is a list of some of the best stock analysis websites which many people refer to while doing stock market analysis.

Value Line
Morningstar
MSN Money
Yahoo! Finance
Motley Fool
Dividend Achievers
Seeking Alpha
CNN Money
Reuters
DRIP Investing
Dividend Growth
Financial Webring Forum
WikInvest
StockPickr
Zack’s Investment Research
Big Charts
The Street
Marketwatch
Gummy Stuff
RiskGrades
ValuePro
Yahoo! Industry Center
GuruFocus
Kiplinger

These are some of the best stock analysis websites which we have been following over the last couple of years. All of them are very reliable and keep data up to date thereby making it easier for the investors to research the stocks.

Related posts:

1. Analysis using stock screeners
2. Historical stocks prices and historical stock quotes – How to get them?
3. Stock Analysis for beginners – Stock Analysis Techniques

Before going into the fundamentals of stock analysis, it is very important to understand how stocks market works and what impacts the stock prices. For example if you want to see which is better between GOOG, YHOO and MSFT, you will need to analyze them separately. When you start analyzing a stock, the first and the most basic thing you need to see are the financial of the company. It is all available on the internet freely. The most common place to find it is in Yahoo finance site (finance.yahoo.com).

Check the profile of the company and notice the following from there:

• Company products and services
• History of the company
• Financial profile of the company

Then check the numbers in the financial reports using the following tools available freely on the internet:

One-year Price chart with 50-day moving average – You can check it at Yahoo finance website. Fro example, you can check for Honda Motor (HNCDAF and HNC) or Nissan Motors (NSANY) directly from Yahoo finance. It is OK to buy a stock if the current price is above 50 day MA. This moving average usually gives the trend of the stock.

Cash Flow per share – You can check it on MSN Money website. This number should be positive since companies with positive cash flow are safer to invest in.

Price/Sales ratio (P/S) – You can again find it on MSN Money website. P/S ratio below 2 is value prices stocks. P/S between 3 and 5 is recommended only for growth stocks.

Average Daily Volume (shares) – You can check it on MSN Money or Yahoo finance website. The average daily volume is a very important factor since institutional buying can lead to price rise of the stock. For example, you can see whether institutions are buying Best Buy (BBY) or BHP? It is recommended that average daily volume should be at least 100,000. More the better. Most shares will have maximum volumes when there is any news on them like in case of Pfizer (PFE) and Bank Of America (BAC).

Financial Health Grade and Growth Grade – These two grades can be found in Morning Star website. These are important to know the health and future of the company. Ideally the health grade should be A B or C and growth grade should be A or B.

Recommendation on buy/hold/sell – Check the Yahoo Finance website to know how many analysts give buy recommendations to this stock. For example, you should see whether the analysts are downgrading or upgrading companies like Hartford Finance (HIG) or Visa (V).

Institutional ownership of stock – You would want to know whether institutions like mutual funds pension funds, etc are having that stock in their portfolio. If they have, chances are good that they also believe that the stock is worth keeping. If not, why would you also buy it? You can check the institutional ownership at Yahoo Finance website.

Apart from the above simple points there are other complex ways like Forecast Revenue Growth Rate, Accounts Receivables Growth vs. Sales Growth, Gross Margin Trend etc which can be used to analysis a stock. You should also see what type of competition the company is facing or going to face in near future.

Related posts:

1. Best stock analysis websites – Stock analysis sites which you can use
2. Stock Analysis for beginners – Stock Analysis Techniques
3. Fundamental Analysis of Stocks

MACD technical analysis uses moving averages, creating a momentum oscillator by subtracting the longer term moving average from the shorter term moving average. In the end you get a line that crosses above and below zero without any limitations on the up or downside. Usually the MACD incorporates a 26 day and 12 day exponential moving average (EMA). 26/12 is the most common combination used by the experts where 26 day EMA is slower and 12 day EMA is faster.

Calculation of MACD

The MACD value can be calculated by simply deducting the longer EMA from the shorter EMA. This value oscillates around a zero point, zeros being where the 26 day EMA is identical, and therefore (usually) crosses over the 12 day EMA.

MACD = EMA (12) – EMA (26)

Once the MACD has been calculated, a 9 day Exponential moving average of the MACD value is then calculated. This value is then plotted and is known as the signal line (EMA (9)).

Purpose of MACD

When the MACD for a stock is positive, it means that that price trending in the long term for that stock is bullish. If the MACD is negative, long term outlook is bearish. It the MACD crosses the signal line; it means that the trend is changing. For example, you can see when the MACD crosses line for Citigroup (C), General Electric (GE) or Intel (INTC)

Characteristics of MACD

The MACD is:

MACD is a lagging trend deviation indicator using two EMAs as method of deviation.

• It is best when used as a technical indicator for long-term trends.
• It is plotted with stock trading software as a smooth series, ignoring insignificant price variation.
• Subject to whipsaw, often leading to poor market timing.

MACD interpretation

Analysts who follow MACD technical analysis use the following guidelines:

When the MACD crosses over from below the signal line and rises above the signal, this is a sign to buy. Conversely, when the MACD crosses over from above and drops below the signal, this is a sign to get rid of the stock.

• If the MACD crosses the zero point and moves from below zero to above zero, this is a buy signal and vice versa.
• In sideways trending markets, there may be numerous cross-overs, thus making interpretation unreliable. MACD buying signs are best used in a generally up trending stock or market.
• The signs to buy or sell are stronger if the movement up or down is sharp.

Related posts:

1. Technical analysis of stocks
2. Technical analysis of stock trends – Volume, Aroon and Fibonacci
3. Stock Analysis for beginners – Stock Analysis Techniques

While the fundamental analysis f stock look at various factors like business, growth, competition, management effectiveness etc, the quantitative analysis discount all these factors since all of these are subjective terms. People will have different definition of conclusion about the management of a particular business and it all depends on how they see it or rather how management presents itself to them.

For quantitative analysis, the number crunching is done through advanced computers now days. These people who do this are also called as quants. These quants will do analysis based on complex formula and will decide on sell versus buy option purely based on these equations and numbers. Some of the major considerations while doing quantitative analysis of stock are:

Company size – First thing which the investors look at is the size of the company. This is usually done in term of capitalization or ‘cap’ in short. Broadly, the companies are divided into various caps depending upon their market. These are micro cap, small cap, mid cap and large cap. Smaller the cap, riskier is the company since it can go bankrupt very easily. But smaller companies have the chances to grow radically as well. Broadly, the guidelines of distinguishing these caps are:

Large cap — $10 billion or more.

Mid cap — $2 billion to $10 billion.

Small cap — $250 million to $2 billion.

Micro cap — $250 million or less.

Criteria based or screen based investing – Some analysts use a filter or criteria to select the company which they want to trade on. These criteria are based on quantitative factors. Again this is done using computers since the selection is done pretty fast.

Momentum of the company can also be used as a deciding factor. Some companies are just doing well for a few quarters in a row which make people believe that company is in good shape. These companies usually outperform other companies in short run and everyone would like to buy stock of this company.

Another interesting topic in quantitative analysis is something called as CANSLIM. CANSLIM is a system pioneered by William J. O’Neil that is a hybrid of quantitative analysis and technical analysis. CANSLIM has an interesting acronym. C and A stand for current and annual earnings, N stands for new (new product or new market), S stands for small cap and large volumes, I for institutional ownership and M for market momentum. All these factors are used to decide buy or sell of a company.

Related posts:

1. Stock Analysis for beginners – Stock Analysis Techniques
2. Fundamental Analysis of Stocks
3. Analysis using stock screeners

Unlike fundamental analysis of stocks, technical analysis doesn’t consider value, growth, income and management’s effectiveness. It relies purely on numbers and charts. Technical analysis uses a wide variety of charts that show price over time. This usually helps to estimate what the future price of a stock may be after studying the past trends as they rely on the principle that ‘history repeats itself’.

Assumptions on which technical analysis work

There are 3 assumptions on which technical analysis of stocks is done. These are:

1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.

Types of charts used in stock technical analysis

The various types of charts being used in technical analysis are:

OHLC (Open high low close charts) – These charts are bar charts in which the high and low price movement of a stock is charted vertically and open and close are charted horizontally. This chart is used to graph outliners and ranges.

Candlestick charts – This chart is similar to open high low close charts but open and close are filled. Often Black or Red candles represent a close lower than the open. And White, Green or Blue candles represent a close higher than the open.

Line charts – These are the simplest of charts which are charted on close price of a stock over a period of time. Analysts believe that the closing price is the most important price of a security.

Charts are one of the most fundamental aspects of technical analysis. It is important that you clearly understand what is being shown on a chart and the information that it provides. Let’s take a look at how are trends noticed in charts. We are only covering the topics on analyzing the stock trends in this article. We would have a separate article discussing technical analysis of stock trends to go deep into this topic.

1. Head and shoulders
2. Cup and handle
3. Double tops and bottoms
4. Triangles
5. Flag and pennant
6. Wedge
7. Gaps
8. Triple tops and bottoms
9. Rounding bottom

These are the most popularly used trends and chart patterns which would help you understand price movement of stock.

Price-based indicators

Price based indicators are very important and are derived from these charts and historical prices. These indicators are generally shown below or above the main price chart.

Accumulation/distribution index—based on the close within the day’s range

Advance decline line — a popular indicator of market breadth

Average Directional Index — a widely used indicator of trend strength

Commodity Channel Index – identifies cyclical trends

MACD – moving average convergence/divergence

Parabolic SAR – Wilder’s trailing stop based on prices tending to stay within a parabolic curve during a strong trend

Relative Strength Index (RSI) – oscillator showing price strength

Rahul Mohindar Oscillator – a trend identifying indicator

Stochastic oscillator, close position within recent trading range

Trix – an oscillator showing the slope of a triple-smoothed exponential moving average, developed in the 1980s by Jack Hutson

Similar to price based indicators there are a few volume based indicators as well:

Money Flow – the amount of stock traded on days the price went up

On-balance volume – the momentum of buying and selling stocks

PAC charts – two-dimensional method for charting volume by price level

Related posts:

1. Technical analysis of stock trends – Volume, Aroon and Fibonacci
2. MACD technical analysis
3. Candlestick Stock Chart Analysis – Introduction

The main aim of doing fundamental analysis is to be able to decide whether it is a good idea to buy a security, hold it or sell it based on its current price. Using fundamental analysis, this type of decision can be made. This type of valuation can be done for stocks as well as any other type of security like forex, options etc.

Fundamental analysis of stock is done on current as well as historical data with the hope of predicting the financial forecasts of a company. Fundamental analysis of stock can be done to answer questions about a company like:

• Is the company’s revenue growing or not?
• Is the company making any profit?
• Will it be able to survive competition and beat it?
• Will it be able to repay its debts?
• Is the management effectively running the business or is it cooking books?
• What is the credit risk of the company?
• And many more…

As mentioned in stock analysis for beginners, fundamental analysis is done based on a few factors like value, growth, GARP, income and quality. Let’s take a look at these factors.

The main purpose of choosing one stock over others is the intrinsic value of that stock. All investors would like to know the value of stock so that they know what profits they will get in case they sell it tomorrow. But, determining value is not a straight forward task. Beginners should understand that although most value investors believe in certain things, not all who use the word “value” mean the same thing.

Growth investing is done by those who think that the company will grow in future at a reasonable pace. Growth is very frequently linked with relatively new companies which have the potential to grow faster than already established ones.

Many people invest not just for value, nor do they look for future growth of the company. They simply invest in a stock because it has a good history of giving out dividends. These types of investors are called income investors.

GARP (Growth at reasonable price) is another concept used by practitioners believing in fundamental analysis of stock. This is basically a combination of value and growth theories and then it puts an additional numerical slant to the equation. One of the common GARP approaches is to buy stocks when the P/E ratio is lower than the rate at which earnings per share can grow in the future. Since GARP uses numbers in its equation, some people believe that it is a part of quantitative analysis instead of fundamental analysis.

Quality – People who want a real quality stock look at all the above factors – growth, value, GARP and income to decide upon a high quality stock. In this theory, fundamentals like management competitiveness along with numerical figures like return on equity (ROE) are looked at in totality. The qualitative and quantitative factors are looked in conjunction to find the real quality stock.

Fundamental Analysis Tools

There are various tools or financial ratios which are used to do fundamental analysis. Some of them are:

1. Earnings per Share – EPS
2. Price to Earnings Ratio – P/E
3. Projected Earning Growth – PEG
4. Price to Sales – P/S
5. Price to Book – P/B
6. Dividend Payout Ratio
7. Dividend Yield
8. Book Value
9. Return on Equity

Criticism of fundamental analysis technique

There are mainly two arguments against fundamental analysis of stocks. One argument is that this analysis is done based on public information which is known by all. Since it is public information, there is no advantage which can be taken by one analyst over another.

Other argument is that a lot of things in this analysis are not properly defined. They are fuzzy so to speak. Therefore these terms like value and growth can be interpreted by different people in different ways.

Related posts:

1. Stock Analysis for beginners – Stock Analysis Techniques
2. Quantitative analysis of stocks
3. Technical analysis of stocks

It is a proven fact that investing in stocks has given the best returns in the long term. The return of investment is much more than those in certificate of deposits or even mutual funds. But for that, it is important that you understand how to do stock analysis and know which stocks are a good buy and which are not. Let us take a look at methods which are used to analyze the stock.

There are basically 3 ways in which stock analysis is done:

• Fundamental analysis of stocks
• Technical Analysis of stocks
• Quantitative analysis of stocks

Fundamental Analysis of stock

In fundamental analysis of stocks, the investors study the stock as a business. When you buy a stock of a company, you are buying a part of that business. Therefore they try to find out the value of that business and then see what the worth of that stock is. This is usually done by assessing the financial per value share of the business. Those who believe in fundamental analysis of stocks like to think that this is the only good way to analyze the stock.

While doing this type of analysis, a few things at which analysts look are value, growth, income, GARP (Growth at reasonable price) and quality. We will cover the fundamental analysis of stock in detail under another topic. Warren Buffet is one of the most famous practitioners of this theory.

Technical Analysis of stock

A lot of investors just look at all the financial details available in the market which are disclosed by the company and then try to figure out whether it is a good buy or not. Since this is public information and available to everyone, you don’t find any edge over other investors. Therefore, some investors try to figure out alternate methods of analysis the stock. One such way is to use tools which tell them what the investors might think about the stock at a particular time. Those who try to do this analysis based on psychological information are called technical analysts of stocks. They use charts like point and figure charts, logarithmic charts, and Japanese candlesticks to do this kind of analysis. Again, we will cover technical analysis of stocks in greater detail under another post.

Quantitative Analysis of stocks

As the name suggests, this type of analysis is purely quantitative meaning it is based purely on numbers. Unlike fundamental analysis, this theory doesn’t believe on things like business, management’s expertise, competition, market potential etc. This theory believes that these parameters are subjective and can be inferred differently by different people. In quantitative analysis, only numbers talk. Company size is considered while analysis the stock. While doing the analysis, investors might adopt screen based investing. In this method, they apply some filters on the numbers. Only if a company passes all filters, and then they do in depth analysis about that stock, else reject it. Another system called CANSLIM is also used which is a hybrid of fundamental and technical analysis.

Above, we have tried to cover the stock analysis techniques which are generally being used in market today. For beginners, it is important to understand the basics of stock analysis. Then, depending upon the philosophy they want to adopt, they can go and study any of these techniques in greater detail.

Related posts:

1. Quantitative analysis of stocks
2. Fundamental Analysis of Stocks
3. Technical analysis of stocks