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					“Investment Analysis and Portfolio Management
(FIN630)”
 “Elliott Wave Theory”

“In the following graph at EACH HIGHLIGHTED POINT of the Elliott wave
theory you are required to:
1. State the stock trend and
2. Suggest the possible decision of the investor regarding buying, selling or retaining
of shares?

   Answer 1:

   The stock trend of following graph is as follows

   In wave 1 the stock makes its initial move upwards.In wave 2 the stock to go down
   because At this point enough people who were in the original wave consider the stock
   overvalued and take profitsWave 3 is the longest and strongest wave this wave
   exceeds the high created at the end of wave 1. Due to The stock has caught the
   attention of the mass public. Wave 4 tends to be weak and downward because there
   are usually more people that are still bullish on the stock and are waiting to “buy on
   the dips” Wave 5 is the point that most people get on the stock, and is most driven by
   hysteria. This is when the stock becomes the most overpriced. : Wave five is the final
   leg in the direction of the dominant trend. The news is almost universally positive and
   everyone is bullish. Unfortunately, this is when many average investors finally buy
   in, right before the top.

ANSWER 2. Suggestions about the possible decision of the investor regarding
buying, selling or retaining of shares are as follows.
In wave 1 the price of the stock is cheap so it’s a perfect time to buy.In wave 2 because
market is bearish and stock price become low so it is perfect time to buy.In wave 3
positive and fundamental analysts start to raise earnings estimates. Prices rise quickly,
corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will
likely miss the boat. As wave three starts, the news is probably still bearish, and most
market players remain negative.Wave 4 tends to be weak because there are usually more
people that are still bullish on the stock and are waiting to “buy on the dips”. Volume is
well below than that of wave three. This is a good place to buy a pull back.In wave 5
market become extremely bullish that’s why its time to sell stock or retain the stocks
because stock is reached in its higher price. Volume is lower in wave five than in wave
three that’s why many momentum indicators start to show differences.

				
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posted:5/12/2010
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