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IM - Module V - Fundamental and Technical Analysis-DrPC (Autosaved)
IM - Module V - Fundamental and Technical Analysis-DrPC (Autosaved)
Unit – V
Fundamental Analysis
and
Technical Analysis
Fundamental Analysis
Fundamental Analysis
Economic analysis
Economic indicators
1) Gross Domestic Product
2) Savings & Investments
3) Inflation
4) Interest rates
5) Budget & Fiscal deficit
6) Tax structure
7) BOP
8) FDI
9) FII
10) International Economic conditions
11) Business Cycles & Investor psychology
12) Monsoon & Agriculture
13) Infrastructural facilities
Industry analysis
Kinds of Industries
• Growth Industry
• Cyclical industry
• Defensive industry
• Cyclical growth industry
Factors to be considered in Industry
analysis
1) Growth of the industry
2) Cost structures and profitability
3) Nature of the product
4) Nature of competition
5) Government policy
6) Labor productivity
7) Research and development
Company Analysis
• Evaluating the financial performance of a
company on the basis of the qualitative
and quantitative factors is called company
analysis
Qualitative factors
• Business model
• Management
• Corporate Governance
• Corporate culture
Quantitative factors:
• Earnings
• Financial leverage
• Operational Leverage
• Production Efficiency
• Financial Analysis
Which is better?
• Compare significant ratios and statistics.
• Read current news and annual reports to
see what their plans are in the future.
• Look for historical growth and continued
opportunity for growth.
Technical Analysis
Technical Analysis Introduction
Bar charts are one of the most popular types of charts used in
technical analysis.
The top of the vertical line indicates the highest price a security
was able to trade during the day, and the bottom represents
the lowest price.
The closing price is displayed on the right side of the bar and
opening prices are shown on the left side of the bar.
This bar represents a day of trading.
The Point & Figure Chart
This type of chart is somewhat rare and most charting services do not offer the point
and figure chart.
This is a chart that plots day-to-day price increases and declines.
A rising stack of X’s represents increases while a declining stack of O’s represents
decreases.
These types of charts were traditionally used for intraday charting (a stock chart for
just one day), mainly because it can be long and tedious to create P&F charts over
a longer period of time manually.
The idea behind P&F charts is that they help to filter out less-significant price
movements and let you focus more on the most important trends.
There are two attributes that affect the appearance of a Point & Figure chart, box
size and reversal amount
Box size In the context of Point & Figure Charts, the box size is the minimum price
change that must occur for a given period before a mark (an X or an O) is added to
the chart.
Reversal amount In the context of Point & Figure Charts, the reversal amount is
the number of boxes (an X or an O) required to cause a reversal. Moving the next
column and changing direction would represent a reversal.
Price Patterns
• Technicians look for many patterns in the
historical time series of prices.
• These patterns are reputed to provide
information regarding the size and timing of
subsequent price moves.
• But don’t forget that the EMH says these
patterns are illusions, and have no real
meaning. In fact, they can be seen in a
randomly generated price series.
Line chart
Point and Figure Chart
• Somewhat rare
• Plots day-to-day increases and declines in price.
• A rising stack of XXXX’s represents increases
• A rising stack of OOOO’s represents decreases.
• Typically used for intraday charting
• If used for multi-day study, only closing prices
will be used
Point and Figure Chart
Point and Figure Chart
(continued)
• Helps to filter out less-significant price
movements allowing analyst to focus on most
important trends
• Used to keep track of emerging price patterns
– No time dimension
• Two attributes affecting the appearance of a
point & figure chart
– Box size
– Reversal amount
Head and Shoulders
H&S Top
• This formation is Head
characterized by two
small peaks on either Left Shoulder Right Shoulder
the trend.
Left Shoulder
Right Shoulder
Head
Head & Shoulders Example
Sell Signal
Rounding Top
Academic perspectives of technical analysis