I am a firm believer in using both technical analysis and
fundamental research as stock picking tools. Many investors
mistakenly specialize in one discipline or the other rather than
a mixture of the two.
Market technicians are often guilty of reaching the conclusion
that all the fundamental information is already inherent in the
price of a security, therefore researching fundamentals is
redundant. At the same time, hard-core fundamentalists believe
that technical analysis only charts the past and thus cannot help
with projecting the future.
I have found both of these sentiments to be correct and to be
wrong at the same time. All the fundamental information about a
stock is inherent in its price. However, studying price alone
will not increase your odds of making a winning trade.
Knowing fundamentals while ignoring the technical picture may
provide a reason for the stock movement, but does not confirm
that price will move in any specific direction. Focusing solely
on the technical picture will tell you what has happened and what
may happen. But there are no guarantees or statistical tests that
have uniformly proven much of traditional technical analysis
works to provide an edge.
So what's an investor to do?
The answer is to use both fundamentals and technical analysis
to choose stocks. If both disciplines agree on a particular
stock, that stock becomes a strong candidate to add to your
portfolio or to short. When there is disagreement, a short-term
trade often presents itself.
Today's trade is an example of a classic case of fundamentals
and technical analysis disagreeing.
The stock is
, an Israeli designer, developer and manufacturer of automatic
optical inspection (
) systems. AOI systems are computer-driven systems that inspect
electronic components for defects at the manufacturing level. The
company also makes products for the printed circuit board
Additionally, it is in the advanced stages of developing a
digital 3-D printing system called the GreenJet System. This
printer is intended to be used for the disposition of solder mask
on circuit boards. The first commercial sales of this product are
slated to take place sometime in 2014.
Camtek, which has a market cap of about $150 million, posted
solid results for the third quarter with revenue of $21.7 million
and operating cash flow of $3.1 million. It ended the quarter
with a cash position of $20.3 million.
Shares soared higher late last month on rumors that the
company was launching the 3-D printer system. It turns out the
company will only be testing the system with a client at the
start of 2014. Profits are only expected should the testing
produce positive results, and then not until the tail end of
While there is certainly nothing wrong with the known
fundamental health of Camtek, the technical picture paints a
clear short selling opportunity.
Shares made a huge run from under $2, soaring more than 200%
and gapping to a high near $6.50 in just two days. They have
since fallen back to the $4.50 to $5 range. This chart pattern
indicates exhaustion on the upside, which means the price should
While the longer-term fundamental picture for CAMT may be
bullish, traders are likely to be able to make a quick profit by
shorting the stock here. As you can see, considering the
fundamentals and technicals together clarifies what action makes
sense here and now.
Action to Take -->
-- Sell CAMT short between $4 and $6
-- Set stop-loss order $1 above your entry level
-- Set initial price target at $2 for a gain of 50% to 67% in six
This article originally appeared at
Chart Predicts This Little 200% Gainer is
About to Collapse
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