Stock Valuation – Technical Analysis by kpg20724

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									 Stock Valuation – Technical
 Analysis

          Essentials of Corporate Finance
          Chapters 7 and 10



Materials Created by Glenn Snyder – San Francisco State University
 Topics

     What is Technical Analysis?
     How Technical Analysis is Performed
     Technical Analysis vs. Fundamental Analysis
     Weak Form Market Efficiency
          Arguments Against Technical Analysis
     Technical Research
          What is a Chart?
          Moving Averages
          Indicators and Oscillators
          Sources of Data
     Career Advice for a Technical Research Analyst
February 26, 2007     Materials Created by Glenn Snyder – San Francisco State University   2
 What is Technical Analysis?

     Technical Analysis is a method of analyzing
      and evaluating securities by using statistics
      generated by market activity
          Historical Prices and Volume


     Technical Analysis analyzes the supply and
      demand of the market itself, rather than its
      components


February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   3
 How Technical Analysis is Performed

     Technical analysts do not try to determine a
      security's value, rather they use charts and
      statistical tools to find patterns that may
      predict future price movements

     Technical analysts try to identify trends, or
      which direction the market is headed
          Who uses Technical Analysis?
                   Hedge Funds
                   Traders
                   Portfolio Managers
February 26, 2007           Materials Created by Glenn Snyder – San Francisco State University   4
 Technical Analysis vs. Fundamental
 Analysis
     Technical Analysis
          Historical Trends
          Market Supply and Demand
          Statistical Analysis
          Short-Term Oriented

     Fundamental Analysis
          Company and Industry Specific
          Specific Company Valuation
          Long-Term Oriented
February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   5
 Weak Form Market Efficiency

     Weak Form Market Efficiency
          All past prices of a security are reflected in the
           current price
          Weak Form implies “Searching for patterns in
           historical prices that are useful in identifying
           mispriced stocks will not work.” – Ross, Westerfield,
           Jordan (Chapter 10, pg. 318)


          Can charts of historical prices lead to finding good
           investments?

February 26, 2007       Materials Created by Glenn Snyder – San Francisco State University   6
 Arguments Against Technical Analysis

     If past prices and performance are already
      reflected in current prices, then Technical
      Analysis cannot predict any future prices
          If Technical Analysis can be used to predict future
           price movements, then the efficiency of the
           market can be called into question




February 26, 2007    Materials Created by Glenn Snyder – San Francisco State University   7
 What is a Chart?
     A Chart is simply a graphical representation
      of a series of prices or volume plotted over
      time




Source: Baseline
February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   8
 Moving Averages

     A moving average is an average of the stock
      price plotted over a period of time
          The moving average smoothes out daily price
           fluctuations to allow the Technical Analyst to
           better understand the trend of the security




February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   9
 Technical Research – Moving Averages

              Pri ce
              50 -Day Movin g Averag e
              20 0-Da y Mo vi ng A ve ra ge
                                                                                                                51

                                                                                                                50

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           Ma y     Jun       Jul      Au g    Se p     Oct     No v     De c     Jan    Fe b     Ma r   Ap r        Source:
                                                                                                                     FactSet

February 26, 2007                   Materials Created by Glenn Snyder – San Francisco State University                    10
 Indicators and Oscillators

     There are two main types of Indicators:
          Leading Indicators - calculations based on prices
           and volumes that precede stock price movements
          Lagging Indicators - calculations based on prices
           and volumes that confirm stock price movements
     Oscillators are banded ranges within
      indicators that reflect overbought and
      oversold conditions


February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   11
 Sources of Data

     Investment professionals use sophisticated
      tools and databases
          FactSet
          Reuters
          Baseline
          Ned Davis Research


     But individuals can do some of this as well
          Yahoo Finance
                   Historical daily prices

February 26, 2007            Materials Created by Glenn Snyder – San Francisco State University   12
 Career Advice for a Technical Research
 Analyst
     Strong Quantitative Skills
       Statistics

       Mathematics

       Economics

     Strong Communications Skills
       Written – Documentation and Write-ups

       Verbal

     Team Oriented
     Look for companies that have an investment focus
       Insurance Companies

       Asset Management Companies

       Investment Banks

       Investment / Trading Companies


February 26, 2007   Materials Created by Glenn Snyder – San Francisco State University   13

								
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