Technical vs fundamental

There's a long-running debate in investing between two camps:

• Fundamental analysts study the business — revenue, margins, balance sheet, competitive position, management quality — and try to estimate intrinsic value. Buy when price is below intrinsic value, sell when above. Warren Buffett, Peter Lynch, Howard Marks.
• Technical analysts study the price chart and the flow of money — moving averages, relative strength, volume, patterns — and look for setups with positive expectancy. William O'Neil, Stan Weinstein, Mark Minervini.

The honest answer: both work and both fail, in different conditions, on different time horizons. They measure different things. Khabir uses both — the universe screen is fundamental (AAOIFI ratios), the daily ranking is technical (RS, stage, RSI). Understanding what each is good at and bad at lets you read our output critically.

Fundamental analysis — the basics

Fundamental analysis tries to answer: what is this business actually worth? Compare that to the market price; the gap is your edge.

Income statement

• Revenue (top line) — total sales. Look at growth rate year-over-year (YoY) and quarter-over-quarter (QoQ).
• Gross margin — revenue minus cost of goods sold, as a % of revenue. Higher is better; signals pricing power.
• Operating margin — what's left after operating costs (R&D, SG&A). Best companies have rising operating margins as they scale.
• Net income / EPS — bottom line. Earnings per share is the headline number markets react to.

Balance sheet

• Cash and short-term investments — the cushion.
• Debt (short and long-term) — financial leverage. Higher debt = higher returns in good times but blow-up risk in bad.
• Shareholders' equity — book value of the company.

Cash flow statement

• Operating cash flow — cash the business actually generates. Often more reliable than reported earnings (which can be manipulated through accounting).
• Free cash flow — operating cash flow minus capex. What's left for shareholders, debt paydown, or reinvestment.

Common ratios

Where fundamental fails

• Time mismatch. Fundamental analysis tells you a stock is undervalued; the market can stay irrational longer than you can stay solvent. Famous Keynes line.
• Quality of inputs. Garbage in, garbage out. Reported earnings can be manipulated; revenue can be pulled forward; cash flow can hide one-offs. The Buffett line: "if you've been playing poker for half an hour and don't know who the patsy is, you're the patsy."
• Bull markets disguise bad businesses. Everyone looks like a fundamental analyst when the market is rising. The test is what you owned during the 2022 drawdown.

Technical analysis — the basics

Technical analysis treats the price chart as a record of everyone's decisions: every buyer and seller acting on every piece of public and private information has been priced in. The chart, then, is a view of supply and demand in aggregate.

Skeptics say it's astrology with line charts. Practitioners point to decades of practitioner success and a few academic findings (momentum factor, post-earnings drift) that suggest at least some patterns are real and persistent.

Moving averages

Average price over the last N days. The 50-day and 200-day SMA are the standard pair. Their slope and crossing patterns inform almost every technical framework.

• Price > rising 50-SMA = short-term uptrend
• 50-SMA > 200-SMA = medium-term uptrend; "golden cross" if a recent crossover
• 50-SMA below 200-SMA = "death cross"; medium-term downtrend

RSI — Relative Strength Index

Wilder's 14-day RSI measures how strong recent up-days have been vs down-days, on a 0-100 scale. Common usage:

• RSI > 70 = "overbought" — could pull back
• RSI < 30 = "oversold" — could bounce
• RSI 40-60 = neutral / consolidating

In strong trends RSI can stay above 70 for weeks. The "overbought" reading isn't a sell signal in isolation.

Relative strength (RS) vs benchmark

How much better/worse a stock has performed than the index over a given window. RS > 0% over 3 months means the stock has beaten SPY in that period. Top-decile RS names tend to keep outperforming over the next 3-12 months — this is the documented "momentum factor", one of the most-replicated anomalies in equity research.

Volume

Number of shares traded. Volume on a breakout day > 1.5× the 20-day average is the classic confirmation that the move has institutional participation. Breakouts on light volume tend to fail.

Patterns

Cup & handle, head & shoulders, double bottom, ascending triangle, VCP. Some hold up under rigorous testing; others are retrofit narratives. We screen for VCP, base breakouts, and pullback- to-50-SMA — three of the better-validated patterns. (See Strategies — deeper.)

Where technical fails

• Regime change. Technical signals presume the future will rhyme with the past. When market structure changes (e.g. Fed tightening cycles, COVID), historical patterns can stop working.
• Confirmation bias. Hindsight charts always look obvious. Live charts at the right edge are messy.
• Doesn't see the business. A great chart on a fraudulent company is still a fraudulent company. Wirecard, Enron, Luckin Coffee all had nice trends until they didn't.

How Khabir uses both

Our screen is a deliberate blend:

• Layer 1 (fundamental): AAOIFI screen filters out non-compliant business activity and leverage. This is where we use balance-sheet ratios.
• Layer 2 (technical): Daily ranking by stage, RSI, RS, 52-wk position, volume confirmation. This is what surfaces the timing — which compliant names look actionable today.

This is intentionally hybrid. Pure fundamental misses momentum. Pure technical misses underlying business risk. Combining both, with the screen as the gate and the technicals as the catalyst, is the framework that has worked for our team and several pro practitioners we follow.

When to lean which way

As a heuristic:

• Long horizon (5+ years), buy-and-hold: fundamentals dominate. Quality of business compounds; entry timing is noise.
• Medium horizon (months to a year), trend-following: technicals dominate. The fundamental story unfolds over quarters; price tells you when the market is recognizing it.
• Short horizon (days to weeks), trading: almost pure technical. Fundamentals don't change that fast; price action does.

Key takeaways

• Fundamental analysis tells you what to own. Technical analysis tells you when.
• Neither is a crystal ball. Both have failure modes.
• Khabir combines both — universe screen is fundamental; daily ranking is technical.
• For most retail investors with multi-year horizons, broad-market ETFs hold up better than active stock-picking. Use individual names for satellite exposure, not core.