Most analyst reports first examine whether a company
is fundamentally sound before deciding whether the price is right.
However, an analysis of a stock's trading history and expectations
is an extremely important part of most analyst reports. Where
you see trading data, including price charts and statistics on
trading volume, you're looking at the technical side of a report.
Technical analysis looks at how a stock trades on the market
to find meaningful patterns. The technical data that an analyst
examines include the price history, trading volume, insider trading,
and
volatility.
Standard & Poor's
reports, for example, offer technical
data like this:
The analyst calls the stock bullish because the
price has been going up. The Relative Strength Rank measures the
stock's past year's price performance compared to the overall
market. And insider activity shows that insiders — executives
who work for the company itself — have been trading the
stock unfavorably. In other words, they're selling more than they're
buying.
Insider trades
The way that company insiders trade their employer's
stock may reveal their positive or negative appraisal of the company's
performance. Insiders are required to report their plans to trade
company stock to the SEC in advance, which allows analysts to
gauge how the insiders are trading.
An analyst report may also include a measurement
of
insider trading volume
— the quantity of trades being
made. If there's a flurry of activity, it may be a harbinger of
changes to come. Of course, dramatic changes in general trading
volume, which may also appear in a report, may also point to important
news and developments.
Sam Stovall, Chief Investment Strategist at Standard & Poor’s
Sam Stovall of S&P tells you what trends it's helpful to look for in technical analysis.
There is an old saying that "the trend is your friend," so spot the overall trend first to see if the share price is likely to continue rising or falling. Next, try to determine how far the trend will go, by looking for areas of "support" or "resistance." Support is a term that describes a price around which investors appear willing to buy the shares. On a chart, it will look like an invisible floor off of which a falling stock price bounces. Resistance is merely the opposite. It's an invisible price ceiling, at which investors appear very eager to sell the stock. Trading the trend within support and resistance has proven to be a very profitable technique for many investors.
Sam Stovall, Chief Investment Strategist at Standard & Poor’s