Technicals versus Fundamentals.

The debate  on what  makes more sense  Fundamental or Technical Analysis has been going on since time in memorial.In fact, "price charts" were frowned on as being magical and voodoo like . In the early days of technical analysis and the Dow Theory "Chartists" were not taken seriously. The super stars of Wall Street were the Stock Analysts who would come out with fantastic looking reports on what to buy and sell based on their volumes of research on company valuations and forward looking scenarios.

Understandably charts where considered as  something similar to "TAROT CARDS ".Why on earth will I risk my hard earned money based on drawings,lines, colors and wiggles on graphing paper. How absurd!!!

The irony is that there is really no conflict between the two. They both serve a purpose. Understanding how to use them is the key.


Fundamentals are essential in identifying present and future value. It spells out the factors ,variables and elements ( fundamentals) that will create future value. The problem is that most market participants make decisions not necessarily based on such fundamentals.A price of a stock or any asset can be perceived as over or undervalued,but unless actual transactions (trades) are  executed to  reflect this over or under valuation the perception remains to be that -a perception of value. There can exist a gap between what ought to be the value and the actual value dictated by the marketplace.

Technicals on the other hand reflects what is and not what it ought  to be.In other words, the price is reality. You may not agree with the value (price) and may have a whole litany of reasons to support your disagreement,but it will not change the value(price) that the market is accepting. The market does not care what your opinion is and will behave according to the dynamics of the marketplace. Unless the markets(buyers/sellers) accept the value that you passionately defend to be the realistic price based on present  and future valuations it will remain to be a passionate cry .

In the final analysis, the key lies on market participants accepting or rejecting the fundamentals.If they do then it will be reflected in price action if they don't it will likewise be manifested by price behavior. Technical Analysis then becomes a tool that can provide the probabilities that fundamentals are either being accepted or rejected.

Touching on the Philippine situation  - fundamentals are said to be "extraordinarily and exceptionally"  bullish. Data does support such views.

When stock analyst and economist  point to this bullishness as a reason to load up on Philippine equities they make great sense and ought to be right.

In fact, the probability of seeing much higher prices for Philippine shares is quite high based on this fundamentals.

 The question remains when this may happen and if it will happen. Getting to point A to Z is not a straight line and maybe a guessing game. The time horizons are unclear and only time will prove things right. Technical analysis can map out the path to getting from point A to Z. Price charts and indicators can help in determining acceptance or rejection of this Philippine miracle. ( which is by the way, long time coming!)


By: Jose Aranaz
Seasoned Trader, Senior Mentor
Formerly from Merrill Lynch