This past week the CMT Association partnered with Koyfin.com on their educational web series webcast to breakdown the art of pairing fundamental analysis with technical analysis framework. The discussion was presented by Rob Koyfman (@koyfman) and centered around the importance of monitoring real-time fundamental indicators like consensus earnings and revisions, analyst recommendations and short interest. All the while, incorporating a technical framework that can make for a powerful toolbox at the end of the day. Whether you’re a pure technician or pure fundamentalist at heart, there is something for everyone here to unpack. If you haven’t already, check out the link to the video here. Our goal today is to highlight the top discussion points from the webcast that may spur future talking points and create a dialogue between us (TCR) and our readers. Yes, that is right, we encourage your participation!
First Things First
One of the first questions Rob presents us within the webcast is this, ‘What Predicts Future Stock Returns?’. We all want the ability to predict the future but the reality is, it’s impossible. So where does that land us? It places us right down below where the small stick figure is smoking a cigar deciding how much of the technical side we want to spend our time with and how much of the fundamental side we want to share our time with. Some individuals may fall directly in the middle, they like a mix of both and that’s that. Others find value in strictly fundamental analysis and may find success doing so. And even others may fall directly in line with the technical side (like myself).
The point is we all have our niche’ ways about attempting our shot at market success. Although we have our biases with technical analysis and fundamentals, I am not here to push one or the other on you, the reader. You have to find that out for yourself and maybe Koyfin can quicken that learning curve for you along the way with their ever-evolving technical tools, fundamental data/overlays and charts galore.
Key Fundamental Charts on Koyfin
Rob started out the fundamental portion by showing a great example of how Koyfin can display market fundamentals, essentially mimicking stock prices. As shown below, this can be accomplished using earnings per share.
Apple ($AAPL) is a great example because it is likely one of the most-followed companies on the planet. Notice how, over the years, price tends to top off before EPS starts to become realized. A quote from Rob describes the above chart perfectly:
“It’s not that fundamentals are following the stock price, it’s that stock prices are sniffing out this fundamental decline before it happens.”
Understanding macro themes, or as Rob says ‘drivers’, is key to interpreting data as well as finding possible areas of interest within the market. A key example within Koyfin that displays a macro theme is Lennar ($LEN) and the comparison between the companies revenue and U.S. Housing Starts.
We typically see a healthy Housing Starts trend, within the United States, benefit the revenues for Lennar. The interesting point that Rob brings up is that housing starts have not come close to 2006-2007 highs, where revenues for the company have started to take out those highs from 2006-2007. This could be taking place for a variety of reasons.
“Cyclicality” within the market place is something we can also track nicely with Koyfin charts. One sector of the market that is currently showing its’ cyclical nature is the Semiconductor space. There are plenty of companies to run with this analysis down below, but Micron ($MU) is one that seems to fit the narrative well.
The highlighted green and red circles are what we want to focus on with this chart. Koyfin gives you another way to look at EPS trends using forward 12 month % returns. You’ll notice when EPS tends to bottom out, it becomes a good time to look at buying Micron. Vice versa when EPS looks to be topping out. However, you end up knowing after the fact if EPS is truly bottoming or topping out. So from a timing perspective, this chart may be better off helping from a probability stance. Utilizing this chart in conjunction with technical analysis practices may start to increase your chances of timing even more than the stand alone chart.
Analyst price targets was also part of the presentation and one that you may or may not have a strong opinion about already. Rob gave a nice perspective on how he likes to use the average analyst price target function side by side with the given stocks price percentage away from the average target. The example he gave occurred in $AAPL down below. The threshold of 30% becomes a great awareness factor for areas to start getting long the stock. The overall trend by definition needs to be upward sloping, but the main point is that there becomes such a deviation between the stock price and the average analyst price target that something really has to give at the end of the day. Either price itself starts to become attractive (we can use a TA perspective for this part) or analysts must adjust.
Without going too far into the weeds of how analysts project their beloved stock prices, we can gather a quick glance on Koyfin at the key differences of price vs. average analyst expectations. This is, without a doubt, useful at extremes and within ongoing strong price trends.
This next chart is one of my favorite parts about not only the presentation but the tool itself within Koyfin. It is a dated example but the science behind how technical analysis evolves within a stock can be depicted in this one chart. We are looking at a multi-year chart of Boeing ($BA) with an overlay of Short Interest Percentage. Notice the massive consolidation breakout taking place in late 2016 and into 2017. At that point, buyers were in the driver’s seat, becoming the overwhelming aggressor relative to sellers. In the meantime, short interest % that was over 4% is now declining below 2% at an alarming rate.
The confirmation here of both price breaking out of the consolidation phase, accompanied by a decline in short interest, is what makes this chart on Koyfin one of the better data visualization tools you can find. Normally, one would have to either track this themselves within an Excel document or bum off the nearest university’s Bloomberg terminal.
These are just a handful of tools available to you the reader, at Koyfin, to better your overall investment experience. Whether you’re a fundamentalist or technical-based investor, the tools are there for the taking. From the sounds of it, Koyfin is releasing an update very soon that expands on the already powerful toolset at your fingertips. Be sure to go check out the update when it is released and let us know what you think!