Trading strategies: Comparing fundamental and technical analysis

OANDA
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Trading strategies: Comparing fundamental and technical analysis

By Craig Erlam

In the 1930s, the economist John Maynard Keynes famously said: “markets can stay irrational longer than you can stay solvent.” In other words, it is nearly impossible to predict the markets – and those who try may find themselves in over their head.

I’ve seen this maxim proven right thousands of times – but that doesn’t mean there isn’t value in research. There are huge benefits to be gained from applying the two main approaches to investing in the financial markets: fundamental and technical analysis.

The art and science of fundamental analysis

Fundamental analysis involves assessing the intrinsic value of an asset based on various factors, including financial statements, economic indicators, industry trends, and company-specific information. If an investor believes an asset is undervalued based on their analysis, they may decide to invest.

Fundamental analysis is often used for long-term investment strategies, as it considers factors that may impact an asset’s value over an extended period. This is particularly useful for stocks, where it can help identify undervalued companies or industries poised for growth, or currencies, when determining a currency’s value.

Technical analysis – the astrology of investing?

Technical analysis, on the other hand, focuses on analysing historical price and volume data to identify patterns and trends. It assumes that all known information is already reflected in the market price, and the key is to use this information to interpret how prices may respond in the future.

Traders using this approach may aim to profit from short-term price fluctuations and capitalise on trends that emerge from market psychology. For that reason, critics call it the “astrology of investing”. But although it can be an inexact science, it can also be extremely valuable. When a company announces results or an economic report like the US jobs data is released, for example, it is not always immediately clear whether they are good, bad, or something in between. But technical analysis can often quickly offer valuable insight into what investors think of it as a collective. That doesn’t mean the initial reaction will always be sustained but there is value in it nonetheless.

Finding comfort in both worlds

Neither method is foolproof. For this reason, some investors prefer to adopt a hybrid approach, combining elements of both methods to give them extra conviction in trading decisions. For example, an investor may use fundamental analysis to form an opinion on a company’s long-term prospects and then use technical analysis to identify opportune entry or exit points based on price trends or indicators.

But those who favour a hybrid approach can fall victim to confirmation bias if they let their fundamental beliefs cloud their interpretation of technical signals, or vice versa. One way to mitigate this bias is by covering up the name of the instrument being analysed during technical analysis to ensure an objective assessment of the chart. This helps traders make more informed decisions based on technical market signals rather than preconceived ideas.

Carving a reliable path forward

The choice between these two approaches often boils down to personal preference – traders and investors are drawn to the method that resonates with their investment style and personality, while others find value in a hybrid approach.

It’s impossible to predict the markets with absolute certainty. The art of investing lies in finding a balance between carrying out rational analysis and recognising the irrationality of market behaviour. By finding the approach that works for them, investors can gain valuable insights into the underlying factors driving asset prices and market trends.

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AIM movers: Litigation Capital award and Allergy Therapeutics returns from suspension

Andrew Hore
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AIM movers: Litigation Capital award and Allergy Therapeutics returns from suspension

Litigation Capital Management (LON: LIT) has won a successful award in an arbitration investment. The company provided litigation funding of A$2.3m and will receive revenues of A$16.9m as a return and a success fee. There is also a performance fee of A$15.1m relating to the return for the managed fund. The share price jumped 18.7% to 82.4p.

Animal feed ingredients developer Ocean Harvest Technology (LON: OHT) has positive trial results for feeding hens, catfish, shrimp and piglets. This shows that the seaweed-based OceanFeed products improves production yields over a wide range of species. There are more trials underway. The share price initially went to a significant premium to the flotation price of 16p, but it subsequently fell back. The latest news has pushed up the share price by 15.8% to 16.5p.  

Abingdon Health (LON: ABDX) and Salignostics have launched the saliva-based Salistick pregnancy test. Abingdon Health will manufacture the test and is exclusive UK distributor. It will be launched in 400 Superdrug stores as the Abingdon Simply Test. There are 12.5 million pregnancy tests each year in the UK. The share price has come off its pea for the day and is up 7.14% to 15.75p.

Creo Medical (LON: CREO) says that its Speedboat Inject product has received a CE mark for use in the gastrointestinal tract. This means that it can be used for endoscopic procedures from the mouth to the lower gastrointestinal tract. The share price is 14.1% ahead at 36.5p.

Allergy Therapeutics (LON: AGY) has returned from suspension following the publication of full year and the subsequent interim results. The interim revenues declined by 18% to £39.9m and there was a swing from operating profit of £7.4m to a loss of £8m. Net cash was £13.2m at the end of 2022. Additional cash will be required by September. The share price slumped 73.6% to 1.65p. The most recent fundraising was at 1p.

Trading has also resumed in Hong Kong-based CCTV installer UniVision Engineering (LON: UVEL) after publishing its interims. It is still waiting final payments for the terminated MTRC contract. Other disputes have been settled or negotiations are at a final stage. Dimension Data is suing UniVision Engineering. Interim revenues slumped from £4.98m to £653,000 and the company fell into loss. Management believes it has enough working capital for the short-term. The share price slipped 22.2% to 0.175p.

In 2022, Tower Resources (LON: TRP) used $283,000 in its operations and a further $3.05m was spent on exploration. There was $231,000 in cash at the end of 2022, while a placing at 0.05p a share raised £2.3m in May. There was a £351,000 VAT rebate received after the year end. The share price fell 5.75% to 0.041p.

Kistos (LON: KIST) says that the Benriach exploration well, West of Shetland, encountered gas bearing sands in the Royal Sovereign formation, but it appears sub-commercial. The share price dipped 5.88% to 256p.

ValiRx continues to decline despite Inaphaea ‘progress’

UK Investor Magazine
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ValiRx continues to decline despite Inaphaea ‘progress’

ValiRx shares were weaker in early trade on Monday despite the life sciences company saying they were ‘particularly excited’ about their progress at their subsidiary Inaphaea. Virtual CRO services company OncoBone will use ValiRx’s Inaphaea as a supplier of cell-based assays.

It appears today’s developments were insufficient to offset the disappointment around the failure of cancer drug trials in conjunction with Hokkaido University announced last week.

ValiRx shares were down around 2.5% in early trade on Monday, trading at the lowest levels since 2020. The ValiRx share price is down 59% over the past year.

Dr Suzy Dilly, CEO at ValiRx, commented:

“This operational update demonstrates the progress made by Inaphaea towards generating contract revenues. We’re particularly excited by the prospect of working with OncoBone due to the innovative nature of their Virtual CRO service.”

ValiRx’s announcement did not refer to the potential amount of revenue generated through the agreement or when it may commence.

Greatland Gold – continuing to intercept significant zones of high-grade gold and copper

Mark Watson-Mitchell
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Greatland Gold – continuing to intercept significant zones of high-grade gold and copper

Greatland Gold (LON:GGP) has this morning announced some exciting drilling results from its continuing development at its Havieron project.

The group, which is a mining development and exploration company focused primarily on precious and base metals, classes its flagship asset as its world-class Havieron gold-copper project in the Paterson Province of Western Australia.

The prospect was discovered by Greatland and is under development in a joint venture with ASX gold major, Newcrest Mining (70%), which itself is in process of a takeover by Newmont Corporation.

Havieron is located some 45km east of Newcrest’s existing Telfer gold mine, providing useful infrastructure advantages.

Significant progress has continued to be reported with total development now exceeding 2,400m including over 1,700m of advance in the main access decline.

Of the latest six assays the best shows were 32m at 6.6 grammes per tonne (g/t) gold and 0.26% copper from 1,317m and 46m at 4.2 g/t gold.

Assay results have been received for all six new drill holes along with assays for four previously drilled holes.

Of these results, eight holes within the SE Crescent returned significant assay intercepts in excess of 50-gram metres of gold.

Group Managing Director Shaun Day stated that:

“We continue to be very pleased with the ongoing progress of the Havieron development which has now surpassed a total of more than 2,400 metres.

Our most recent drilling affirms the impressive widths and high grade nature of the South East Crescent.  

Particularly encouraging is confirmation of continuous mineralisation through the link zone which connects the South East Crescent with the Eastern Breccia.  

The Havieron team is focused on incorporating these impressive results into an optimised Feasibility Study.“

After this news the shares of the £333m capitalised Greatland Gold were steady at 6.5p this morning.

Momentum sustained at AIM asset manager

Andrew Hore
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Momentum sustained at AIM asset manager

Asset managers have been having a tough time in the past 18 months because of the weak stockmarket. There is one AIM-quoted company that is still generating substantial inflows that more than make up for any decline in the value of the existing assets.
In the second half of the financial year the company generated average monthly asset inflows of £148m. The year-on-year growth in assets under management was 12% to £12.7bn, before the most recent acquisition last year. This growth in assets enables attractive dividend income growth and has led to forecast upgrades following the annual figures.
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Aquis weekly movers: SulNOx Group US patent

Andrew Hore
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Aquis weekly movers: SulNOx Group US patent

SulNOx Group (LON: SNOX) has been granted a US patent for a range of formulations including the Berol 6446 Heavy Fuel Oils emulsifiers and SulNOxEco Fuel Conditioners for diesel and petrol. This will help to generate revenues in the US. The share price increased 10% to 11p.

Coinsilium Group Ltd (LON: COIN) has converted a £200,000 loan note into Greengage Global Holding Ltd shares and warrants. It has also invested £25,000, at a 9.9% share price increase on the initial investment in the digital merchant banking technology developer, in the latest £1m fundraising. This increases Coinsilium’ stake to 27,133 A shares and 8,370 warrants. The share price rose 4.55% to 1.15p.

SuperSeed Capital (LON: WWW) managing partner Mads Jensen bought 3,000 shares at 85p each. The share price improved 3.13% to 82.5p.

Cadence Minerals (LON: KDNC) investee company Hastings Technology Metals has signed non-binding heads of agreement with Neo Performance Materials Inc relating to a potential offtake agreement for rare earth concentrate from stage one of the Yangibana rare earths project. This could cover up to 25,000 tonnes per annum. The share price edged up 2.25% to 8.65p.

Mark Horrocks has increased his stake in Lift Global Ventures (LON: LFT) from 12.3% to 13.3%. Investee company Trans-Africa Energy has entered a joint development agreement with Ghana Natural Gas, which gives the company majority stakes in four projects processing and transporting natural gas. The share price fell 15.8% to 0.8p.

Newbury Racecourse (LON: NYR) is investing 40% of its media income into prize money this year. A new betting office retail rights agreement started on 1 April. An annual dividend is planned this year. The share price dipped 2.58% to 755p.  

Energy storage technology company Invinity Energy Systems (LON: IES) has reassured the market that its 2022 accounts will be published by the end of June and there is likely to be a reduction in provisions for contract losses. That means the overall loss will be lower. Revenues will be around £3.6m. There was cash of £15.4m at the end of May. The share price fell 1.19% to 41.5p.

AIM weekly movers: Sancus Lending recovery

Andrew Hore
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AIM weekly movers: Sancus Lending recovery

Shares in finance provider Sancus Lending (LON: LEND) doubled to 0.9p last week. This was on the back of chief executive Rory Mepham buying one million shares at 0.51p each. The previous week, Somerston Fintech and Golf Investments increased their combined stake from 55.5% to 56.6%. The share price is still 28% below the level it was at the beginning of the year.

Red Rock Resources (LON: RRR) has been granted an environmental certificate for a lithium project in Zimbabwe. It has also been granted its first licence in Ivory Coast – for an initial four year term. The share price jumped 68.6% to 0.215p. That was down from the high on the week after William Armstrong and reduced their stake from 6.55% to 4.18%.

Sustainable biopesticides developer Eden Research (LON: EDEN) has appointed a new product distributor in Colombia. Anasac Colombia will be exclusive distributor of Mevalone and it will seek regulatory approval for its use on freshly cut flowers to prevent Botrytis cinerea. Colombia exported $1.73bn worth of cut flowers in 2021. The share price is 58% higher at 7.9p.

Rurelec (LON: RUR) has completed the disposal of its Argentinian assets and a special dividend of 0.2p a share will be paid on 14 July. The main asset remaining are power turbines, which the company is trying to sell. They may be ring fenced to make it easier for the company to attract a reverse takeover deal. The share price is 50% ahead at 0.75p.

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Fallers

Battery technology developer AMTE Power (LON: AMTE) says it needs to complete a financing within four weeks. There is no certainty that any money will be raised and that means that shareholders may end up with nothing. The cash will provide more time for the company, but it needs significant funds to finance the building of a battery plant. The share price has slumped 73.2% to 13.25p. The March 2021 placing price was 175p.

Mirada (LON: MIRA) fell a further 48.3% to 1.55p ahead of the cancellation of the AIM quotation on Monday.

Shares in GCM Resources (LON: GCM) slipped 38.8% to 2.525p on the back of a heavily discounted placing raising £500,000 at 2.5p. The discount looks high because of a spike in the share over the past month. At the beginning of June, the price was 2.9p. Further cash will be required for working capital later in the year.

Nigeria-focused oil and gas company San Leon Energy (LON: SLE) is continuing discussions on a refinancing, but the progress has not been as fast as expected. There are $10.5m of unpaid creditors. The 2022 accounts will not be published by the end of June and trading in the shares will be suspended on 3 July. The share price slide continues with a further decline of 37.7% to 15.525p. The share price has more fallen 53.9z% so far this year.

Travis Perkins shares knocked down by interest rates induced profit warning

UK Investor Magazine
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Travis Perkins shares knocked down by interest rates induced profit warning

Travis Perkins shares were the biggest FTSE 350 faller on Friday after the company said they were feeling the pressure of higher interest rates and inflation.

On Wednesday, the UK Investor Magazine included Travis Perkins in our premium article detailing FTSE 350 stocks most at risk of higher interest rates.

Today, these risks were confirmed as Travis Perkins said they were experiencing difficulties as a direct result of higher interest rates and issued a profit warning.

Travis Perkins said in a statement:

“Volumes in both the new build housing and private domestic RMI markets continue to be impacted by higher interest rates and weaker consumer confidence driven by persistent, higher than anticipated consumer price inflation.”

AJ Bell’s Russ Mould explains Travis Perkins’ challenges in their new home building and consumer-facing business.

“John Carter, when he was boss of Travis Perkins, used to say the health of the housing market was far less important to the business than repair, maintenance and improvement (RMI) demand for existing homeowners,” Russ Mould said.

“His argument was that you don’t need a sale or a purchase of a property to spend money with the builders’ merchant, and that RMI demand was less governed by the direction of interest rates.

“He also said new build homes were more of a sideshow for Travis Perkins than existing housing stock, calling work for the big housebuilders ‘padding’ and not that profitable.

“While Carter is no longer chief executive, it’s clear from Travis Perkins’ latest trading update that his argument would not stand up today.

“In its profit warning, the company cited weaker volumes in new build housing and private domestic RMI markets being affected by higher interest rates, together with weaker consumer confidence amid high levels of inflation.”

Buoyant FTSE 100 rises with global equities; Fraser Group’s spending spree continues

UK Investor Magazine
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Buoyant FTSE 100 rises with global equities; Fraser Group’s spending spree continues

The FTSE 100 was heading into the weekend on a high after global equities rallied on hopes major economies were nearing the end of their hiking cycles.

Instalments by the Federal Reserve and ECB this week suggest that although there are more rate hikes to come, they are now largely priced into markets.

US and Asian stocks rallied overnight, and European stocks took hold of their tailcoats on Friday.

“A decent showing on Wall Street last night has helped to put investors in a good mood, with the key markets across Europe and Asia ending the trading week on a high,” said Russ Mould, investment director at AJ Bell.

The FTSE 100 was 0.2% higher at the time of writing on Friday.

FTSE 100 movers

Ocado continued a storming rally on Friday, gaining over 3% as the FTSE 100’s foremost performer. Ocado has gained 15% over the last five trading sessions.

Fraser Group was up 2.7% as the retailing group increased their stake in AO World to 21%. Fraser Group is on a spending spree, targeting online retailers AO World and ASOS. Fraser Group increased their ASOS stake to 10.6% yesterday.

Fraser Group took an initial 19% stake in AO World last week, saying the deal was the “culmination of productive talks over the last two years about establishing a strategic partnership”.

Miners were among the top fallers as investors booked profits after a strong rally in commodities companies ignited by Chinese stimulus. Antofagasta was down 1.6%, and Anglo-American dipped 2%.

The Future of e-Bikes and Making our Cities Greener with WATT Mobility

UK Investor Magazine
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The Future of e-Bikes and Making our Cities Greener with WATT Mobility

The UK Investor Magazine was thrilled to be joined by Frans Nomden, CEO of WATT Mobility for a deep dive into the future of e-bikes and how they are making our cities greener and cleaner.

Our cities are striving for cleaner forms of transportation and governments are promoting the use of bikes and e-bikes.

WATT Mobility is pursuing its growth strategy with a crowdfunding round on Seedrs. We discuss why WATT are crowdfunding now and the opportunity for investors.

Find out more about their crowdfunding round on Seedrs here.

McKinsey has produced a comprehensive report on the future of mobility, in which e-bikes play a leading role. Read the McKinsey report here.

WATT Mobility has carefully positioned itself as an affordable option for riders and is targeting deep penetration of the European market by increasing its reselling network to 800 stores from 180 currently.

Explore WATT Mobility’s e-bike range here.

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