Page 205 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes 1926. The 31/2 years which followed the forecast of Hamilton’s editorials for the 26-year
period, from 1904 to 1929. Of the 90 recommendations Hamilton made for a change in
attitude towards the market (55% were bullish, 18% bearish and 29% doubtful) only 45
were correct. Such a result an investor may get by flipping a coin).

10.6.2 Price Indicators of Market

The different price indicators which measure market movement are briefly explained below:
1. Breadth of Market: Breadth-of-market indicators are used to determine what the main
body of stocks is doing. It is computed by comparing market advances or declines. The
technician is interested in change in breadth than in absolute level. Several methods are in
vogue for measuring the breadth of the market. The most common ones are explained
here.

The breadth-of-market statistics are obtained by using the data of stock advances and
declines. The data of advances and declines are published daily in most financial and
national newspapers. Three simple methods are presented here:
(i) Plurality or Net Advances and Declines: To get net advances or declines, subtract the
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
(ii) 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
(iii) 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.

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