Page 182 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 6: Technical Analysis

(a) Plurality or Net Advances and Declines: To get net advances or declines, subtract the Notes
number of issues whose prices declined from the number of issues whose prices
advanced each day. Obtain cumulative index by adding daily net advances and
declines.
When the index +ve, market is bullish

When the index -ve, market is bearish
(b) Advance: Decline ratio: a simple variant to the above method is computing a ratio.
Advance - Decline ratio = no. of advances/no. of declines.
When the ratio is > 1, market is bullish

When the ratio is < 1, market is bearish
(c) Market breadth index: This is another way of computing the advance and declines

2(advance declines)
Market breadth index =
Unchanged
The figure of each week is added to the next week. The data are then plotted to
establish the patterns of movement of advances and declines.

If both the stock index and market breadth index increase, the market is bullish.
When the stock index increases but breadth index does not, the market is bearish.
Iteratively, it can be emphasized that the technician is more interested in change in
breadth. Further indexes are used along with stock market index. Normally, breadth
and stock market index will move in unison. The key signals occur where there is
divergence between the two. When they diverge, the advance decline line shows the
direction of the market.

2. Price Indicators of Individual Stock: After the technical analysis has forecast the probable
future performance of the market, he has focussed his attention on individual stock
performance. The popular method of analyzing price changes of individual stocks are
charts and moving averages.

6.7 Types of Trend

There are three types of trend:
1. Uptrends

2. Downtrends
3. Sideways/Horizontal Trends
As the names imply, when each successive peak and trough is higher, it's referred to as an
upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little
movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want
to get really technical, you might even say that a sideways trend is actually not a trend on its
own, but a lack of a well-defined trend in either direction. In any case, the market can really only
trend in these three ways: up, down or nowhere.

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