Page 197 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes Questions
1. What do you analyse about the CitiGroup's status by going though the above technical
analysis?
2. What trend do you foresee for the CITIGROUP in future?
Source: www.stocktradinghero.com

6.10 Summary

The term technical analysis is used to mean a fairly wide range of techniques; all based on
the concept that past information on prices and trading volume of stocks gives the
enlightened investor a picture of what lies ahead.
It attempts to explain and forecast changes in security prices by studying only the market
data rather than information about a company or its prospects, as is done by fundamental
analyst.
Fundamentalists make their decisions on quality, value and depending on their specific
investment goals, the yield or growth potential of the security.

They are concerned with the basis, the corporation's financial strength, record of growth
in sales and earnings, profitability, the investment acceptance and so on.
They also take into account the general business and market conditions.

Finally, they interpret these data inductively to determine the current value of the stock
and then to project its future price.
Fundamentalists are patient and seldom expect meaningful profits in less than one year.

Some critics see technical analysis as a form of black magic.
One should not be surprised to see them question the validity of the discipline to the point
where they mock its supporters.

In fact, technical analysis has only recently begun to enjoy some mainstream credibility.
While most analysts on Wall Street focus on the fundamental side, just about any major
brokerage now employs technical analysts as well.

The technician must (1) identify the trend, (2) recognize when one trend comes to an end
and prices set off in the opposite direction.
His central problem is to distinguish between reversals within a trend and real changes in
the trend itself.
This problem of sorting out price changes is critical since prices do not change in a smooth,
uninterrupted fashion.
The two variables concerning groups of stocks or individual stocks are: Behaviour of
prices, and Volume of trading contributing to and influenced by changing prices.
One school of thought led by William L. Jiler developed a comprehensive technique
called "Chart Reading".

Charts provide visual assistance detecting the emerging and changing patterns and changing
patterns of price behaviour.
Technical analysts use three basic types of charts.

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