Chapter 5 SECURITIES ANALIST

Chapter Securities analysis 06/08/2011 B02003 - securities analysis Chapter 5: Securities analysis 5.1 Some concepts 5.2 Fundamental analysis (lesson 8) 5.3 Technical analysis (lesson 9) 06/08/2011 B02003 - securities analysis 5.1 Some concepts • • • • Definition of securities analysis activity Analysis methods Data base of securities analysis Analysis models 06/08/2011 B02003 - securities analysis Definition of securities analysis activity • Securities analysis is analysis of micro and macro data base in order to give basis of making decisions of securities investors • Securities analysis activity need to solve following basic questions: – When should invest and what kinds of securities should invest in at which price? – When should withdraw from the market? 06/08/2011 B02003 - securities analysis Analysis methods • Analysis of top to bottom (top down) • Analysis of bottom to top (bottom up) 06/08/2011 B02003 - securities analysis Analysis of top to bottom Macroeconomics inside and outside of the country Branch Enterprise 06/08/2011 B02003 - securities analysis Analysis of bottom to top Macroeconomics inside and outside of the country Branch Enterprise 06/08/2011 B02003 - securities analysis The database of stocks analysis – database for the macro analysis – the database for the sector analysis – database for the company analysis 06/08/2011 B02003 - securities analysis Database for the macro analysis • • • • GDP Rate of GDP growth ICOR index National monetary financial policies and balance of payments 06/08/2011 B02003 - securities analysis Database for the sector analysis • • • • Average profit rate P/E Business cycles Existence period of the products, and short-term and long-term developed outlook of the sector, etc 06/08/2011 B02003 - securities analysis • Two terms used in this chart are: Opening price Increasi ng price 06/08/2011 Decreasin g price Closing price B02003 - securities analysis Trend, The Trend line, Channel • Trend Trend consists of "bull trend" and "bear trend" The bull trend includes consecutively increasing peaks and bottoms of price (the former peak and bottom are at the higher level than the later ones) 06/08/2011 B02003 - securities analysis • The trend line: The bull trend line connects gradually increasing peaks and the bear trend line links gradually decreasing peaks • Channel is a corridor, within which the price chart is moving Channel is defined by two parallel lines called trend line and channel line 06/08/2011 B02003 - securities analysis Retracement, Trading Range, Support and Resistance Retracement After a period of moving in accordance with the market trend, prices will retrace a little before moving in accordance with the previous trend The price movement in the opposite direction of the previous trend is often able to be forecasted and is considered as Retracement 06/08/2011 B02003 - securities analysis Retracement 06/08/2011 B02003 - securities analysis Retracement • The most popular average retracement is 50% The lowest and highest retracements are 33% and 66% respectively: price will retrace at least by 1/3 increase (or decrease) level that it reached in the previous trend and the retracement will not exceed 2/3 increase (or decrease) level in the previous trend If the retracement is higher, there will be a reversal of market It means that price movement is in the opposite direction of the previous trend without moving in accordance with that trend (Further reading about Fibonacci numbers) 06/08/2011 B02003 - securities analysis Trading Range • Trading Range is defined as a horizontal line which consists of price movements in a long period • The period in which price movement is in the trading range does not exist market trend 06/08/2011 B02003 - securities analysis Trading Range 06/08/2011 B02003 - securities analysis Support and Resistance • Support: is the price level at which demand is thought to be strong enough to prevent the price from declining in a long period • Resistance: is the price level at which selling is thought to be strong enough to meet demands of buying and prevent the price from rising in a specific period 06/08/2011 B02003 - securities analysis Support 06/08/2011 B02003 - securities analysis Resistance 06/08/2011 B02003 - securities analysis The "Random Walk" theory • The "Random Walk" states that stock price changes have the same distribution and are independent of each other, so the past movements of a stock price cannot be used to predict its future movement • The theory, which is based on the "Efficient Market" theory, claims that market prices follow the random path up and down According to this theory, the best investment strategy is buying and holding 06/08/2011 B02003 - securities analysis The "Dow" theory - basis of Technical Analysis • The Dow theory is basis of all technical analysis on the market The theory is based on fluctuations of the market, which are shown in the average index of the market, to be built The theory is not based on statistics of enterprises' business operations of Fundamental Analysis 06/08/2011 B02003 - securities analysis The "Dow" theory - basis of Technical Analysis • When market prices increase, prices of some securities rise faster than other ones • When market prices decline, although prices of some securities decrease quickly and the other ones decrease slightly or increase, prices of almost securities move in the same trend • Charles Dow launched the concept of average price index in order to discuss the same trend of some securities which are considered as typical on the market 06/08/2011 B02003 - securities analysis The principles of Dow theory • Market average index identifies all • Three trends within the market: primary, secondary and minor trends • Bull Market and Bear Market • All average index lines of the market have to confirm the market trends • Trading volume is carried out with market trends • Horizontal lines can replace for secondary trends • Only closing price is used to study • A trend needs being supposed to be on until a sign of reversing the trend has identified 06/08/2011 B02003 - securities analysis .. .Chapter 5: Securities analysis 5. 1 Some concepts 5. 2 Fundamental analysis (lesson 8) 5. 3 Technical analysis (lesson 9) 06/08/2011 B02003 - securities analysis 5. 1 Some concepts... securities analysis 5. 3 Technical Analysis 5. 3.1 Definition 5. 3.2 Basic assumptions 5. 3.3 Basic definitions and tools used in technical analysis (Further information on http://www.itrade.vn) 5. 3.4 The... information on http://www.itrade.vn) 5. 3.4 The "Random Walk" theory 5. 3 .5 The "Dow" theory 5. 3.6 "Elliot Wave Fibonacci Numbers" theory 5. 3.7 Method of effectively selecting stock 06/08/2011 B02003