Fundamentals

Trading is not just about reading charts, or reading the tape.  We also must understand the market’s and a stock’s  fundamentals.  We are not fundamental traders but we use fundamentals to help us increase our win rate.  For the intraday trader we use fundamentals very specifically.  Let’s discuss.

We used fundamentals to help us profit in JCG yesterday.  Yesterday JCG blew out its numbers.  JCG beat on the bottom line, revenues, and going forward. Their results were better than the Street expected.  This is likely to attract new buyers to a stock.  As an intraday trader when a stock offers surprisingly positive sales numbers we trade that stock more aggressively on the long side.  When JCG shows strength on the tape we give the stock the benefit of the doubt and get long.

Connor just showed his tape of DLTR from this week.  DLTR reported strong Q1 results, the tape did not show resistance until 46, bids were not dropping near 44.40 on the open, so he got long.  And he held DLTR, until he saw resistance near 46.  He used fundamentals to help him make a profitable trade.

Fundamentals that I look for are: increased market share, increased margins, surprisingly good earnings.  When I see this then I trade the stock more aggressively from the long side.  I trade stocks more aggressively on the short side when their margins decrease, they lose market share, or their results are surprisingly negative.

There is always a big picture to your trading day.  There is usually something that dominates the business news cycle.  What is the market most concerned with today? This week the chatter has been about the potential bubble in treasuries.  We keep an eye out for how this may weigh down the market.  Previously we were concerned with the liquidity of the banks.  Before that there was the effect that oil may have on consumers as it hovered around $130 a barrel.

And as these big picture concerns get worse than we must see more evidence to get long on the tape.  As these big picture concerns find good news then we are free to trade more aggressively on the long side.

I am not a fundamental trader.  But I must understand them to a certain degree.  I am not a slave to them.  They are not as important as price action, the inside market, the prints, and the volume of the stocks I am watching.  But I factor in the fundamentals to provide more color for my tape.

And let’s take JCG again as an example.  25 was huge resistance.  JCG is much more likely to get through this resistance because the market is strong, the tape looked strong, AND they blew out their numbers.  I combine all of the above to improve my win rate as a trader.

So that is how we do it.  Don’t forget to follow us on twitter.

Best of luck with your trading.

jcg-05-29-091

dltr-05-27-09

4 Comments on “Fundamentals”

  1. Mr. Bellafiore,

    I have a quick question on your recent blog. I see how fundamentals can strengthen your conviction about a trade. However, at what point would fundamentals keep you out of an intraday trade?

    I can’t wait to hear from you.

    Thanks,
    Angel Cuevas

  2. Mr. Bellafiore,

    I have a quick question on your recent blog. I see how fundamentals can strengthen your conviction about a trade. However, at what point would fundamentals keep you out of an intraday trade?

    I can’t wait to hear from you.

    Thanks,
    Angel Cuevas

  3. Angel,

    If there is nothing new about the fundamentals when a stock reports this will cause disinterest from me. I want something that is gonna move. And expected reports don’t make stocks move generally.

    Mike

  4. Angel,

    If there is nothing new about the fundamentals when a stock reports this will cause disinterest from me. I want something that is gonna move. And expected reports don’t make stocks move generally.

    Mike

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