Only a Fundamental Analyst Would Recommend a Stock in a Downtrend

Etsy shares are in the process of giving back all of their 2020-2021 gains.

Shares of the e-commerce company Etsy (ETSY) were raised to an "outperform" (buy) rating by a sell-side firm Thursday.

Of the three methods of security analysis I have the most problem with fundamental analysis. A fundamental analyst can conclude that a security is undervalued and recommend its purchase even though its share price is still declining. As a technical analyst I want to wait for evidence that a stock has bottomed and is turning higher. I will miss the actual low but I gain confidence in my purchase. 

Let's review the charts of ETSY. 

In the daily bar chart of ETSY, below, I can see that the shares have struggled since February. ETSY is trading below the declining 50-day moving average line and below the 200-day moving average line.

The On-Balance-Volume (OBV) line began a decline in February and it continues into September. A weak OBV line tells me that sellers of ETSY have been more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator is bearish. 

 

In the weekly Japanese candlestick chart of ETSY, below, I am looking at the past four years of price history. The shares are in the process of giving back all of their 2020-2021 gains. ETSY trades below the declining 40-week moving average line.

 

The weekly OBV line made its peak in early 2021. The weekly candles are not showing us lower shadows and no bottom reversal patterns. The MACD oscillator remains bearish. 

 

 

In this daily Point and Figure chart of ETSY, below, I can see that the software is projecting a downside price target in the $41 area. 

 

 

In this weekly Point and Figure chart of ETSY, below, I can see a $44 price target. 

 

 

Bottom-line strategy: I respect the fundamental approach but when a stock price is in a downtrend I take it with a "grain of salt." Avoid the long side of ETSY for now.

 

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