Resource World Magazine

F E B R U A R Y / M A R C H 2 0 2 0 www.resourceworld.com 23 COMBINING FUNDAMENTAL & TECHNICAL ANALYSIS The two disciplines of fundamental and technical analysis are often set against each other and investors may think that they must make a choice. This doesn't need to be the case and there is a middle ground. Investors and traders can consider com- bining the two approaches as part of their overall investment strategy. This is what I do: I look for certain chart patterns and conduct research to glean the fundamental reasons behind why the chart patterns look either bullish or bearish. Chart patterns have changed since the days of Robert Edwards and John Mcgee's clas- sic work Technical Analysis of Stock Trends, although their ideas are still relevant because they recognized the recurring pat- terns that occurred from the professional (and sometimes unethical) stock operator pools of the day. Today, we must deal with instant-trad- ing computer algorithms and high-speed communications that have made stock markets much faster than in the past. New and different patterns have emerged and that is what I focus on today in my work. Fundamental analysis attempts to deter- mine the value of a share by analysing a company's financials from SEDAR and other sources using qualitative data about the environment in which it operates. This value is often called intrinsic value. The simplest form of fundamental anal- ysis is by using fundamental ratios such as the P/E ratios, price-to-sales ratios or the dividend yield. However, in the case of junior mining shares, we simply don't have that luxury. The nature of these companies is that they are cash-burning machines with no revenue and don't have much in the way of fundamentals. However, there is help for investors as many people write about the junior mining sector and there are a number of quality online and print publications, including, of course, Resource World magazine. Technical analysis offers a different view of a stock. It is based on the belief that the combined minds of the world are making decisions about a company on a moment-by- moment basis and all that is known about a stock is reflected in its price and volume as can be seen on a company's stock chart. The market is often made up of a very large number of people who may have very different views on the market, making both long and short-term decisions with both long and short positions. The activ- ity of these very large numbers of investors and traders results in different patterns emerging in the market. An example could be as simple as an exploration camp cook who is told to pre- pare extra meals for more guests, a helicopter pilot is booked to bring in banking analysts and investors, drillers see the core they are drilling, and on and on. People think some- thing is up and don't want to miss out. We can imagine that all these minds are at work assessing a company at various levels of proficiency. Technical analysts attempt to recognize these patterns and take advantage of them when making their investment decisions. Whereas early in a bull market it is hard to see the fundamentals, I now look for, and am starting to see, fundamentals kick in. Examples of positive developments are Newmont and others raising dividends, record earnings being posted by miners and, of course, mergers and acquisitions like Zijin and Continental Gold and the potential merger between Kirkland Lake and Detour. So, while I can see the potential for some softness in the short term, I am very bullish on the metals sector over the next two to five years. n John Newell is a portfolio manager at Fieldhouse Capital Management. He has 38 years of experience in the investment industry acting as an officer, director, portfolio manager and investment advisor with some of the larg- est investment firms in Canada. Newell is a specialist in precious metal equities and related commodities and is a registered portfolio man- ager in Canada (advising representative). 778-330-3008 John.Newell@fieldhousecap.com

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