Technical analysis?

Based on the price and volume of the stock The use of market data o Historical price and volume information Applied to individual stocks and aggregate stock prices o Stock market index as well, dow jones industrial average Reflects investor emotions Predictions based on patterns that have developed in the past Technical approach Prices move in trends by changing attitude of investors Identify trends early to maintain posture until evidence indicates otherwise The dow theory Based on three types of price movement o Primary Broad market movements that lasts several years Broad market trends that goes on for a long period of time Bull and bear markets is a upward (downward) primary move o Secondary Occurring within primary move, lasting several weeks or months o Day-to-day moves Shorter term moves occurring randomly. Occurring randomly around primary and secondary Not considered to be significant Bull market occurs o When the previous rallies or peaks have penetrated the previous highs Bull market occurs o When the previous rallies does not penetrate the previous highs Technical corrections o Day to day-ripples are of minor importance Charting price patterns Bar chart o Vertical bars top represents the highs and lows of the day o More common of the two o Tick market on left is the opening price o Tick market on the right is the closing price Point-and figure chart o Compresses price changes into small spaces o Xs and Os indicates an increase past the prescribed rate

o Os indicates the decrease in past rate Price changes can be recognized and put in categories (Trends are led with changes in supply and demand) o Trend line Identifies a trend or direction o Support price level Expecting a significant demand of a stock Where investors dont believe the price is worth what its trading at and the price fallsreaches the neckline and then investors rush in and price increases. If the price falls below the neckline, they suggest it will continue to fall o Resistance price level Expecting a significant supply of a stock Price increases to the point that investors look to sell and then the price falls. Breaking through this resistance price will continue to increase

Reversal patterns Double top o Signally a change in trends Bullish to bearish o The trough needs to represent at least 10 percent for a pattern to exist o Signals that a trend is going from bullish and bearish o Break in support should occur with increase volume to confirm pattern Double bottom o Signally a change in trends bearish to bullish o Volumes even more important than for double top Should increase as resistance broken Head & shoulders o Two low points and a high point o Reversal pattern again o Shows trend from buillish to bearish Must break through support line for it to be a legitimate pattern Continuation patterns Symmetrical triangle Suggets pattern is expected to continue Contains two lower highs and two higher lows If it breaks at the upper arm of the triangle, suggest the pattern will continue o If not and falls, suggest its a reversal. Ascending triangle Usually interpreted a bullish pattern

Rising lows is causing people to get in on the market to buy as value is expected to go up When it breaks through resistance level, suggests a buy signal as the pattern is expected to continue Decending triangle Lower highs Equal lows form the support level We are seeing a bearish trend developing o As it breaks through the support level Moving averages Moving through time get to oberservation 11 and drop observation 1 Used for both overall market and individual stocks Used for both the direction and rate of change o Dropping old and picking up the new observation o Comparisons to current market prices produces buy or sell signals Considered an early indicator suggesting that new prices are higher than older prices and can be a buy or sell signal when compared to current market prices Types of moving averages Simple moving average (SMA) = Early indicators o Drops below moving average and that the new price is going to drop below the 10 day average price=bearish sign o Bullish sign suggests that the current price crosses above the moving average Stock price should continue to increase o There is a time lag problem When you move you drop 1 day. Takes a while to move the entire line Exponential moving average (EMA) o Reduces lag in SMA by applying greater weight to more recent observations Older observations are not bearing as much weight and avoids the same weights of the SMA o The trend is more sensitive due to the greater weight on the observations Multiple moving averages o MA works best when there is definite trends in the markets (up and down) o MA considered Lagging indicator o Suggests that the 10 day moving average is more sensitive then the 200 day average to new observations Its easier to move the entire segment

o Used to identify patterns and trends that are not strongly trending o Analysts suggests using two moving averages of varying duration o Factors in volume as can be reinforce the trend Bollinger bands Brand width set on the volatility of the stock o Measures volititlity in the market Bollinger bands are set 2 standard deviations above and below the moving average o 95% of your observation should fall between these two bands o identities the upper and lower trading ranges Wider band = more volatile market Narrower band = stable market o = Strong trends Attempt to match it with volume trends Relative strength indicator How strong that particular stock is compared to the market as a whole Higher relative price then the market = Growing or rising then the market o If it falling, suggests that its falling faster then the market Can distinguish super or subnormal performance Breadth indicators Advanced-decline line Measures the difference between the number of stocks advances and decling o Tells you how strong across the market the trend is moving A large decline line o Suggests a very good trend across the market When compared and plotted against an index, a divergence above or below the line suggests a change or trend o Shows the general direction of the market, and if its a relatively small or large segment of the market High trading volume regarded a bullish Sentiment indicators Short interest ratio o Indicates that the larger the ratio that more people are shorting Suggesting pessimism in the market Contrarian o Would jump in at the short selling and buy Eventually these short sellers would need to buy back the shares and create demand to cover Mutual fund liquidity Based on contrarian theory

If mutual funds show low levels of liquidity buying as much as they can o Invested heavily in the market o Contrarian believes the market is at their peak or at the market Short sale High liquidly = bearish o Contrarian = buy signal as the market Is going to bullish as everyone is getting out of the market

Put/call ratio Speculators buy calls when the market is expected to go up o Vice versa Look for readings between below .7 and above .9 are signals to contrarian