Stock prices consist of two parts, earnings value and cyclical worth. The former is intrinsically based whilst the later is market driven.
Through fundamental analysis of a stock’s earnings value the stock’s price can be expressed as a normal price/earnings ratio as well as a projected value of the likely future earnings as determined by the trend of the stock at any given time.
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Through cyclical analysis the extreme variable high and low prices likely to be paid as a premium for or a discount of the future fundamental values in time can be determined.
Cycles have an uncanny knack to trough at approximately equal time periods and with further observation the skill of picking alternate high and low market price levels becomes an art all on its own.
So equal time periods measures and determines the rhythmic fluctuations of market price above and below fundamental ‘intrinsic’ values. This is the value of the force which cycles apply to advance prices above fundamental values in an upward swing and drag prices below ‘values’ in a downward swing of the cyclical rhythm.
It also involves the forecast of such rhythms into the future.
So if you combine this ability to forecast and the value of the force which cycles exert then an assessment of future probabilities of price movement can be made. Through the direction of the trend of the stock’s price as reflected by its economic healthiness and also through the direction cyclically of present and future price rhythms.
There are ways of determining the long-term trend of price by analysis of longer cycles and fundamentals.
There are ways of determining the short-term direction or trend of the stock price by analysis or the shorter cycles.
There are also ways of determining when both types of cyclical movement are likely to end and reverse in the opposite direction.
Price-cycle movements in any market originate from the rhythmic consequences of two equal but very opposite forces seeking equilibrium. The forces are the desire to buy and sell which are constantly intangible because only a small amount of the total desire reaches the market.
To measure the relative strength of both the buying and selling forces the desire, the want, the need must be transformed into an actual action which at that moment becomes buying or selling volume depending on the direction of the price movement with the two forces constantly alternating ascendancy.
At any given moment only one force can be dominant at the expense of the other if we are to establish a trend otherwise we have a sideways movement since there is only a finite number of would-be buyers and sellers.
Once you attain and master the skills combined with the knowledge of timing and the effects of fundamentals consistent profits are more likely in the stock market because you are armed with tools that allow you to ascertain the flow of the basic currents underlying stock price movements.
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