Commodity Central  |  DEC 2006

Spread Analysis And A Look At Unknown Fundamentals by Darin Newsom

Stocks & Commodities V. 24:12 (42-46): Spread Analysis And A Look At Unknown Fundamentals by Darin Newsom How do you know what the underlying fundamental situation is when the supply and demand factors remain unknown? Basically, commodity market analysis can be broken into two categories: fundamental and technical. Fundamental analysis focuses on the supply and demand situation of the market, or all the various factors that affect the price of a particular commodity leading to the discovery of that market’s intrinsic value. Technical analysis studies price action over time or the price trend of the market. Where fundamental analysis assumes the study of supply and demand numbers will lead to the true value of the market, technical analysis is based on the idea that market action, discounts everything. This point is central to the discussion of the relationship between the two and should be restated. Anything that can possibly affect price direction of a particular commodity and be considered a fundamental factor — supply and demand, political unrest, natural disasters, and so forth — is reflected in the price of that commodity (that is, the market action).

by Darin Newsom