In his latest book “The Neatest Little Guide to Stock Market Investing“, Jason Kelly writes:

There are two ways to evaluate stock. The first way is using fundamental analysis, which examines information about
the company’s health and potential to succeed. You use fundamental
information to learn about a company. The second way is
using technical analysis, which examines the past
behavior of the stock price in different market conditions and attempts to
predict the stocks future price based on current and projected market conditions
and trading volume. You use technical information to learn about
the company’s stock.

He then goes on to describe each type of analysis in more detail:

Fundamental Analysis:

For individual investors, fundamental analysis
should form the core of their evaluations. Choosing good
companies is what I consider the core of successful investing…and a long term
investment strategy. By looking at a company’s management, its
rate of growth, how much it earns, how much it pays to keep the lights on and
the cash register ringing are easy things for you and me to understand.
After all, we constantly balance these things in our own lives.
[By doing this] you determine the company’s intrinsic value. Intrinsic Value is the price the stock should be selling at under normal
conditions. The most important fundamental measure in
determining a company’s intrinsic value is earnings: what the company is
earning now, and what you expect it to earn in the future. After
that, you want to know the company’s assets, if it’s in debt, and the history of
the management. Once you have a clear picture of the company’s intrinsic
value, you examine the price to see if it’s selling above or below its
value. If it’s selling below its value, it’s a good buy. If
it’s selling above its value, it’s overpriced. Of course, there’s
more to it than that, but for now let’s leave it black and white.

Technical Analysis:

…is a little harder to understand. It uses
charts of price history, computer graph patterns, and crowd psychology to
evaluate stock. The premise of technical analysis is that supply
and demand drive all stock prices. Fundamental information
doesn’t matter until it affects demand. The main measurement
technical analysts use to gauge demand is trading volume. After
that, they look at trend charts, volatility, and small price
movements.
Technical analysis is useful, but a takes a lot
more than a nodding acquaintance to use correctly. [For the busy
investor, it is not a method to rely on.] However, there are a few
simple technical measures that you’ll find helpful as you embark on
your stock picking adventure. You’ll use them to
gauge where the overall market is at and to determine if the stocks that
interest you are selling at more or less than their intrinsic value, which you
will know after conducting your fundamental research.

He summarizes:

You evaluate the company behind the stock with
fundamental analysis, then you evaluate the price of the stock and its demand
with technical analysis.

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