pm final ppt.ppt
TRANSCRIPT
-
7/28/2019 PM final ppt.PPT
1/32
INVESTMENTS
-
7/28/2019 PM final ppt.PPT
2/32
Chapter 16
Technical Analysis
-
7/28/2019 PM final ppt.PPT
3/32
Define technical analysis and explain why it is
used.
Describe the major techniques used intechnical analysis.
Discuss the limitations of technical analysis.
Learning Objectives
-
7/28/2019 PM final ppt.PPT
4/32
Use of published market data for analysis of
both aggregate stock prices and individual
stocks
May produce insight into the psychologicaldimensions of the market
Used by investors and investment advisory
firms Oldest approach to stock selection
What is Technical Analysis?
-
7/28/2019 PM final ppt.PPT
5/32
Prices move in trends determined by changing
attitudes of investors
Identify change in trend at an early stage and
maintain investment posture until evidenceindicates otherwise
Market itself is the best source of data about
trends Data includes prices, volume, and technical
indicators
Technical Approach
-
7/28/2019 PM final ppt.PPT
6/32
Technicians disagree with fundamental analysis
because they believe it is extremely difficult to
estimate intrinsic value and to obtain and
analyze information consistently Technicians believe market data indicates forces
of demand and supply
Record of investor mood that can be detected
and is likely to continue
Technical Approach
-
7/28/2019 PM final ppt.PPT
7/32
Use of graphs, charts, and technical trading
rules and indicators
Price and volume are primary tools of the pure
technical analyst Technicians use charts to identify trends and
patterns in stock prices that provide trading
signals
Volume data used to gauge market condition
and to assess its trend
Tools For Technical Analysis
-
7/28/2019 PM final ppt.PPT
8/32
-
7/28/2019 PM final ppt.PPT
9/32
Charts Of Price Patterns
Trend lineA line on the chart of a security indicating the general direction in whichthe securitys price is moving .
Support levelA price range at which a technician expects a significant increase in the
demand for a stock.
Resistance levelA price range at which a technician expects a significant increase in the
supply for a stock.
-
7/28/2019 PM final ppt.PPT
10/32
-
7/28/2019 PM final ppt.PPT
11/32
-
7/28/2019 PM final ppt.PPT
12/32
Bar Chart
A plot of daily stock price plotted
Against time, having price on the
Vertical and time on the horizontal
Axis. The technician use these
charts to predict future price
moves.
-
7/28/2019 PM final ppt.PPT
13/32
-
7/28/2019 PM final ppt.PPT
14/32
-
7/28/2019 PM final ppt.PPT
15/32
-
7/28/2019 PM final ppt.PPT
16/32
-
7/28/2019 PM final ppt.PPT
17/32
Point and Figure chart
Point and figure (P&F) is a
charting technique used
in technical analysis. Point and
figure charting is unique in that it
does not plot price against time as
all other techniques do. Instead itplots price against changes in
direction by plotting a column of Xs
as the price rises and a column of
Os as the price falls
http://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Technical_analysis -
7/28/2019 PM final ppt.PPT
18/32
-
7/28/2019 PM final ppt.PPT
19/32
The theory was derived from 255 Wall Street
Journal editorials written byCharles H.
Dow (18511902), journalist, founder and first
editor of the Wall Street Journal and co-founderof Dow Jones and Company. Following Dow's
death, William Peter Hamilton, Robert Rhea
and E. George Schaefer organized and
collectively represented Dow theory, based onDow's editorials.
The Dow Theory
-
7/28/2019 PM final ppt.PPT
20/32
Based on three types of price movements
Primary move: a broad market movement that lasts
several years
Secondary moves: occurring within primary move,lasting several weeks or months
Day-to-day moves: occurring randomly around
primary and secondary moves
Bull (bear) market refers to upward (downward)primary move
The Dow Theory
-
7/28/2019 PM final ppt.PPT
21/32
Bull market occurs when successive rallies
penetrate previous highs
Declines remain above previous lows
Bear market occurs when successive rallies fail
to penetrate previous highs
Declines penetrate previous lows
Secondary moves called technical corrections Day-to-day ripples are of minor importance
The Dow Theory
-
7/28/2019 PM final ppt.PPT
22/32
Used for analyzing both the overall market and
individual stocks
Used specifically to detect both the direction
and rate of change New value for moving average calculated by
dropping earliest observation and adding latest
observation to the average
Comparison to current market prices producesbuy or sell signal
Moving Averages
-
7/28/2019 PM final ppt.PPT
23/32
Ratio of a stocks price to a market or industry
index
Ratios plotted to form graph ofrelative price
across time Rising (falling) ratio indicates relative strength
(weakness)
What if a stock is declining less quickly than the
market?
Relative Strength
-
7/28/2019 PM final ppt.PPT
24/32
-
7/28/2019 PM final ppt.PPT
25/32
Advance-Decline Line
Measures the net difference between number of
stocks advancing and declining
Plot of running total across time is compared to astock average to analyze any divergence
Divergence implies trend changing
Number hitting new highs (lows)
High trading volume regarded as bullish
Breadth Indicators
-
7/28/2019 PM final ppt.PPT
26/32
-
7/28/2019 PM final ppt.PPT
27/32
Based on contrary opinion
Mutual funds, viewed like odd-lotters, assumed
to act incorrectly before a market turning point
Low liquidity implies funds fully invested (bullish)
and market is near or at peak
High liquidity implies funds are bearish
Considered a good time to buy
Mutual Fund Liquidity
-
7/28/2019 PM final ppt.PPT
28/32
Speculators buy calls (puts) when stock
prices expected to rise (fall)
Rise (fall) in ratioof put option purchases to
call option purchases indicates pessimism(optimism)
Buy (sell) signal to a contrarian
Extreme readings (below .7 or above .9)
convey trading information
Put/Call Ratio
-
7/28/2019 PM final ppt.PPT
29/32
-
7/28/2019 PM final ppt.PPT
30/32
-
7/28/2019 PM final ppt.PPT
31/32
Thorough tests of technical analysis have failed
to confirm their value, given all trading costs and
the alternatives, such as a buy-and-holdstrategy
Several interpretations of each technical tool
and chart pattern are not only possible, butusual
Conclusions about Technical
Analysis
-
7/28/2019 PM final ppt.PPT
32/32
Strong evidence exists suggesting that stock
price changes are weak-form efficient
Impossible to test all techniques of technical
analysis
Regardless of evidence, technical analysis
remains popular with many investors
Conclusions about Technical
Analysis