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Security Analysis and Portfolio Management
Case 2
Mohammed Al Naim 200700415
Ahmad al Dossary
200700669
1. What are the benefits of technical analysis over fundamental analysis?
Security analysis can be done using technical analysis and fundamental analysis.
Technical analysis determines the future price of a stock by focusing on the direction or
trend of stock prices and the market by studying past data like prices and trade volume.
Fundamental analysis determines the intrinsic value of a stock by focusing and
analyzing the company’s published financial statements, business environment,
industry, competitors and other economic factors that can influence the supply and
demand of the stock.
Fundamental analysis is used for long-term investment, while fundamental
analysis is used for both short-term and long-term investment. Technical analysis
predicts price changes earlier than fundamental analysis. They have good timing.
Technical analysis is better than fundamental analysis because it is simple and
straightforward, ideal timing and does not use financial statements which can be
deceptive at times because of management’s control over its preparation.
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2. Plot the stock price data and the return data for the last 60 months.
Sears Historical Monthly Prices
Monthly Prices
150
100
50
0
Apr-07 Nov-07 Jun-08 Dec-08 Jul-09
Jan-10 Aug-10 Feb-11 Sep-11 Apr-12 Oct-12 May-13
Date
Monthly Percentage Returns
Sears Monthly Percentage Returns
100.00%
50.00%
0.00%
Apr-07 Nov-07 Jun-08 Dec-08 Jul-09 Jan-10 Aug-10 Feb-11 Sep-11 Apr-12 Oct-12 May-13
-50.00%
-100.00%
Date
2
3. Find the breadth of the market for the last 12 months.
Breadth of a market measures the number of issues (trading volume) that have
increased or decreased during a day. If a securities are trading below its previous close
it has declines volume, advances volume when it is trading above its previous close.
Advances volume, a bullish market for Sears, is indicated by the white bars.
Sears stock is trading above its previous close on good volume on January, March, and
September. Declines volume, a bearish market for Sears, is indicated by the dark blue
bars. Sears stock is trading below its previous close on good volume on February and
December.
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4. 100-Day Moving Averages for Sears and S&P 500
Sears stock is outperforming the S&P 500 market index during March to April
and October to November as shown in the figure above (the white line above the yellow
line). During May to September, Sears’s stocks are either a little below or above the
market index. The 100-day moving average is indicated by the light blue line, Sear’s
stocks are trading above the 100-day moving average during the periods March to April
and October to November, it means that Sears’s stock has an upward trend (bullish
market) and are generally healthy, it is time to buy the shares (buy signal). Sears’s
stocks are trading below the 100-day moving average during the periods May to August
and December, it means that Sears’s stocks has a downward trend (bearish market)
and are generally considered unhealthy. Thus it is time to sell the shares (sell signal).
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5. Trends and Stock Price Movements
A bullish market for Sears starts on January until March, at the start of the
upward trend, investors should buy Sears Stock. A bearish market for Sears starts
when the bull period ends, at this time investors should sell their shares to maximize
gains, Sears’s bearish period starts at the end of March and continues until May. There
is no significant long-term trend during the periods May to November. The S&P 500
market index is shown as a flat line all throughout the period showing less volatility.
5
6. Relative Strength of Sears
No.
Date
Historical Monthly Prices
Price Relative
Percentage Change
Sears
(Sears/S&P 500)
Relative Price
S&P 500
1
Nov-12
42.01
1416.18
2.97%
-40.28%
2
Oct-12
62.67
1412.16
4.44%
14.17%
3
Sep-12
55.49
1440.67
3.85%
2.67%
4
Aug-12
52.75
1406.58
3.75%
4.42%
5
Jul-12
49.49
1379.32
3.59%
-20.01%
6
Jun-12
59.7
1362.16
4.38%
15.06%
7
May-12
49.4
1310.33
3.77%
-2.03%
8
Apr-12
53.78
1397.91
3.85%
-20.10%
9
Mar-12
66.25
1408.47
4.70%
-8.10%
10
Feb-12
69.66
1365.68
5.10%
46.28%
11
Jan-12
42.14
1312.41
3.21%
23.95%
12
Dec-11
31.78
1257.6
2.53%
-64.95%
13
Nov-11
60.33
1246.96
4.84%
-25.41%
14
Oct-11
78.18
1253.3
6.24%
20.46%
15
Sep-11
57.52
1131.42
5.08%
3.41%
16
Aug-11
59.89
1218.89
4.91%
-9.28%
17
Jul-11
69.67
1292.28
5.39%
-0.34%
18
Jun-11
71.44
1320.64
5.41%
2.46%
19
May-11
71
1345.2
5.28%
-17.77%
20
Apr-11
85.97
1363.61
6.30%
1.13%
21
Mar-11
82.65
1325.83
6.23%
-0.69%
22
Feb-11
83.31
1327.22
6.28%
6.87%
23
Jan-11
75.37
1286.12
5.86%
-0.07%
24
Dec-10
73.75
1257.64
5.86%
5.54%
25
Nov-10
65.5
1180.55
5.55%
-9.20%
26
Oct-10
71.98
1183.26
6.08%
-3.84%
27
Sep-10
72.14
1141.2
6.32%
6.82%
28
Aug-10
61.96
1049.33
5.90%
-8.76%
29
Jul-10
71
1101.6
6.45%
2.72%
30
Jun-10
64.65
1030.71
6.27%
-25.64%
31
May-10
88.3
1089.41
8.11%
-22.91%
32
Apr-10
120.95
1186.69
10.19%
9.46%
33
Mar-10
108.43
1169.43
9.27%
6.81%
34
Feb-10
95.67
1104.49
8.66%
-0.28%
35
Jan-10
93.28
1073.87
8.69%
14.90%
36
Dec-09
83.45
1115.1
7.48%
14.47%
37
Nov-09
70.95
1095.63
6.48%
-1.13%
6
38
Oct-09
67.86
1036.19
6.55%
5.83%
39
Sep-09
65.31
1057.08
6.18%
-0.62%
40
Aug-09
63.45
1020.62
6.22%
-7.76%
41
Jul-09
66.34
987.48
6.72%
-7.42%
42
Jun-09
66.52
919.32
7.24%
15.69%
43
May-09
56.85
919.14
6.19%
-14.60%
44
Apr-09
62.47
872.81
7.16%
22.26%
45
Mar-09
45.71
797.87
5.73%
13.60%
46
Feb-09
36.76
735.09
5.00%
0.92%
47
Jan-09
40.92
825.88
4.95%
14.09%
48
Dec-08
38.87
903.25
4.30%
6.20%
49
Nov-08
36.25
896.24
4.04%
-38.77%
50
Oct-08
57.74
968.75
5.96%
-29.64%
51
Sep-08
93.5
1166.36
8.02%
11.19%
52
Aug-08
91.95
1282.83
7.17%
11.47%
53
Jul-08
81
1267.38
6.39%
10.49%
54
Jun-08
73.66
1280
5.75%
-5.00%
55
May-08
84.72
1400.38
6.05%
-16.24%
56
Apr-08
98.61
1385.59
7.12%
-8.11%
57
Mar-08
102.09
1322.7
7.72%
7.15%
58
Feb-08
95.62
1330.63
7.19%
-10.92%
59
Jan-08
110.49
1378.55
8.01%
14.26%
60
Dec-07
102.05
1468.36
6.95%
Relative strength compares the performance of a security relative to benchmark
(S&P 500). The stock has relative strength if a stock has displayed significant positive
relative strength against the market.
Sears stock is outperforming the S&P 500 market index during March to April
and October to November as shown in the rising price relative, thus relative strength,
Sears stocks are outperforming the market. During this period investors has to
accumulate shares of stocks of Sears (buy signal). The Price Relative falls when a stock
shows relative weakness and is underperforming its benchmark. Most of the time Sears
stock outperforms the market and is showing relative strength.
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7. Final Comments
Sears Stock shows more volatility than the S&P 500 market index. Sears’s stock
outperforms the market during the first quarter; has approximately the same returns
during the second and third quarters but underperforms in December 2012 as shown in
the stocks trading below the market index and the 100-day moving average. The trend
is downward a bearish signal, thus it is time to sell the shares of Sears stocks.
8
References
www.financeyahoo.com
www.msnmoney.com
www.morningstar.com
http://stockcharts.com
Brigham, E., Ehrhardt, M. “Financial Management: Theory and Practice” Thomson
South-Western 2005
Bodie, Z.,Kane, A.,Marcus, A. “Essentials of Investment” 8th edition. McGraw Hill
Companies Inc. 2010.
Keown, A., Martin, J.,William Petty, J., et al. “Financial Management: Principles and
Applications” 10th Edition, Pearson Education International Prentice Hall 2005
Moyer, C., McGuigan, J., Kretlow, W. “Contemporary Financial Management” 8th
Edition, South-Western College Publishing 2001
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