Download Downlaod File

Case 2
Security Analysis & Portfolio Management
FINA 4315
Finance
Submitted by:
Rahma Alkhuder 200-800-624
Dec.18, 2012
1. What are the benefits of technical analysis over fundamental analysis?
Unlike fundamental analysis, technical analysis is a simple and a straightforward
method. It makes use of the tools that are readily available to everybody, from the
most novice trader to the executive mangers in an industry. Moreover, the technical
tools used in this method are easy to interpret, unlike the methods used in
fundamental method, where there is a need for careful study to understand the tools.
A person doing the analysis has only one pointer to handle the price. This is
because technical analysis places its focus only on price auction. Thus, the analyst
is in a better position to calculate profits and losses. The use of visual aids in this
method allows the investors and other interested party to have a quick overview of
the market and its performance. In turn, this allows them to determine the best way
to enter the stock market, to invest in it to avoid entering there altogether. This is
primarily because visual aids such as graphs and charts are the main way of
information presentation in technical methods, with minimum need for voluminous
statements.
2. Plot the stock price data for the last 60 months. Then also plot the return
data of the same firm for 59 months (because you will lose 1 month’s data
to calculate return from stock price).
25
20
15
10
Series1
5
2012, Sep
2012, Jun
2012, March
2011, Dec
2011, Sept
2011, June
2011, March
2010, Dec
2010, Sept
2010, June
2010, March
2009, Dec
2009,Sept
2009, June
2009, March
2008, Dec
2008,Sept
2008, June
2008, March
2007, Dec
0
Figure 1: stock price data plot for the last 60 months
25
20
15
10
Series1
5
2007, Nov
2008, Feb
2008, May
2008, Aug
2008, Nov
2009, Feb
2009, May
2009, Aug
2009, Nov
2010, Feb
2010, May
2010, Aug
2010, Nov
2011, Feb
2011, May
2011, Aug
2011, Nov
2012, Feb
2012, May
2012, Aug
2012, Nov
0
Figure 2: Plot for the return data for the last 59 months
3. Find the breadth of the market for the last 12 months. For this, you have to
use data from other sources, if necessary. Comment on that.
In predicting the strength of the market for the stocks, it is necessary to
determine the breadth of the market by taking the ratio of the gaining and the losing/
stock prices. In this case, the stock breadth for the last 12 months is given by:
(4.809200209 + 2.244389027+4.876419506 +2.038216561 + 4.93133583+
1.835853132 + 1.060445387+ 6.549257017 ÷ (-9.658536585-4.669464848 2.995867769 -20.28753994)
= (28.34511667: -37.61140914)
= - 75%
The market breadth in this case is -75%, which means that the number of stocks
going down is relatively larger than the number of improving stocks. There is a high
risk of a crisis in the stock market.
4. Find the 100-day moving average for your firm’s stock price and the index.
You need daily data for your firm and the index. Comment on that.
Moving day averages are given by finding the number of daily closing prices for
the stocks as a ration of the number of months. In this case, the last 100 days, the total
price amounted to around 65.3 in 100 days. Thus, the moving average in this case is
given by:
65.3 / 100 days
= 0.653
The moving averages are estimation because the numbers of days are counted for
every month, and not daily records have been given. In addition, the theoretical concept
is that the moving average keeps changing as more prices are added and the old ones
removed.
5. Using your stock price data show the major trend, intermediate trend and
short-run movements. Do the same for the index. Give comments on this.
25
20
15
10
Series1
5
2002, Dec
2003, June
2003, Dec
2004, June
2004, Dec
2005, June
2005, Dec
2006, June
2006, Dec
2007, June
2007, Dec
2008, June
2008, Dec
2009, June
2009, Dec
2010, June
2010, Dec
2011, June
2011, Dec
2012, Jun
0
Figure 3. Trend developed with share price
4
3
2
1
-1
-2
2002, Dec
2003, June
2003, Dec
2004, June
2004, Dec
2005, June
2005, Dec
2006, June
2006, Dec
2007, June
2007, Dec
2008, June
2008, Dec
2009, June
2009, Dec
2010, June
2010, Dec
2011, June
2011, Dec
2012, Jun
0
Series1
-3
-4
-5
Figure 4: Trend developed with share index
The trends shown with share price are less volatile than the one shown by the
index. As such, this is an indication that the share market is quite volatile, which
agrees with the results of the market breadth above.
6. Find the relative strength for your firm in the last 60 months. What is your
comment?
The Average stock price of the stock over the last 60 months is given by:
914.35/ 60
= 15.24
Therefore, the relative strength is given by a comparison between the average
share prices and the other share price. in this case the S&P 500, which stands at
18.53 is taken as the reference share price and compared with the Tyson share
price.
Thus, the relative strength is given by:
15.24/18.53
= 0.82
Since this is a positive number, it is an indication that the market value is trending
upwards, which could attract new investors. By looking at this figure, investors will
be interested in investing not only by buying the Tyson shares, but also by buying
other shares in the stock market. The value provides the investors with an easy way
to predict the market’s future, especially concerning the possibility of making profits
from the investment. In case the number was is negative, investors will shy away
from investing in the market.
7. Based on all the previous findings, make your final comment? This is the
time to buy or sell?
From the analysis of the market given here, it is worth noting that the market
is characterized with a number of facets that define its trend. First, the plot of return
on shares is quite good, indicating that there could be some potentials to make
profits. This is the initial indication that shares in a given stock market are potential
points for investments. They provide a. quick indication that the market is not only
performing well, but also headed towards a profitable future. In most cases,
investors will be looking for such indications because they are simple to calculate
and interpret. Even among the people who have no background in marketing and
stock market analysis, statistical figures provided in technical methods provide them
with adequate information on which they base their search for better points for
investments.
However, the market breadth, the moving average and the trends indicate a
negative growth in the specific stocks, which further indicates a possible risk in
buying these shares. Market breath is an important technical indication of a growing
or slowing stock market. Where market breadth is weaker, it is an indication that the
market could be headed for a crisis. In such cases, it is advisable that the investors
take time to study the market to avoid putting their investments in a failing market.
However, the relative strength indicates a strong market. Therefore, the best
decision is to sell the current shares (Tyson) but not to move out of the market;
rather it is better to purchase other shares in the market since the market is
perfuming pretty good.