Technical Analysis of Market Prices Chapter 5 PDF

Chapter (5) Technical Analysis of Market Prices 1-Measures of direction of investors First: Barron's Confidence Index. Second: the index of the upper and lower levels. 2- counterpoint of view indicators First; the fractional quantities balance indicator. Second ; short selling. 1 ...

Chapter (5) Technical Analysis of Market Prices 1-Measures of direction of investors First: Barron's Confidence Index. Second: the index of the upper and lower levels. 2- counterpoint of view indicators First; the fractional quantities balance indicator. Second ; short selling. 1  1- Measures of direction of investors First: Barron's Confidence Index It is an indicator published weekly by the American Barron's magazine. The following equation explains how to measure it: Barron's Confidence Index = average return on high quality bonds x 100 average return on medium quality bonds The numerator represents the average return on high-quality bonds (10 companies), and the denominator is the return on medium quality bonds (average return of 10 companies). The result of the index determines market conditions and direction, and it is expected Of course, the value of the index is less than 100, as long as the yield of high-quality bonds is usually lower than the yield of medium-quality bonds. 2  Example If you know that the average return of 10 high quality bonds is 9%, and the average return of 10 medium quality bonds is 10%. Calculate Barron's confidence index and explain its meaning. Barron's Confidence Index = average return on high quality bonds x 100 average return on medium quality bonds Barron's Confidence Index = 9/10 = 90% It is clear from the previous Baron index result that the value of the index is less than 100%, which means that the return of high-quality bonds is lower than that of low-quality bonds due to the high risk of low-quality bonds and, consequently, their high returns. The index approaches 100% if the yields of high- quality bonds rise. In general, the value of the index usually ranges between 85% and 95%. 3  Second: the index of the upper and lower levels the upper and lower levels index in which the number of stocks whose price has reached a high level it has never reached before is compared to the number of stocks whose price reached a low level it has never reached before. The following Equation explains how to measure this Index: Index of high and low levels = D / (D + D*) Where: D: represents the number of shares that have achieved a high level that has not been reached before. D*: represents the number of stocks that achieved a low level that has not been reached before. 4  As it seems, the value of the indicator must range between zero and one. If the value of the index is close to the one , this is evidence that a larger number of stocks have risen in prices to a level they have not reached before, and vice versa if the value of the index is close to zero. Proponents of this index claim that when its value is less than 0.1, it is an indication that the price decline has ended. If the value of the index is greater than 0.9, then it is considered as an indication that the stage of rising prices has reached its end, meaning that it is on its way to falling again. The index gives the investor the information he wants regarding the timing of the investment decision, and whether it was a decision to buy or sell. 5  Example If you know that the number of shares that achieved a high level that it has not reached before is 100 shares listed on the London Stock Exchange in 2022, and that the number of shares that achieved a low level that it has not reached before is 65 shares. Calculate the index of the upper and lower levels and explain its meaning. Index of high and low levels = D / (D + D*) = 100/ (100 + 65) = 0.606 60.6% Which means that the market is still going up and that we are still in the buying phase and have not reached 0.9 level. 6  2- counterpoint of view indicators  The measures of the opposite point of view are based on the belief that there is a group of investors that usually make wrong investment decisions, especially when market prices are on the way to transforming. Accordingly, a successful strategy requires knowledge of the decisions of these investors, and in light of them, opposite decisions are taken.  One of the most common of these measures is the fractional quantities balance indicator, selling exposed. 7  First; the fractional quantities balance indicator which is measured by the equation: Fractional quantities balance indicator = Fractional quantities sales Fractional quantities purchases. Fractional quantities are described as operations that are less than 100 shares, and are usually carried out by small investors and according to the index. If the ratio is more than one correct one, this means that the sales of fractional quantities are more than the purchases of fractional quantities. Therefore, the technicians who sell take it to be in an anti- market position - the side The reverse and they buy and vice versa. 8  Example If you know that the fractional quantities sold are 120 shares on the Tokyo Stock Exchange, and the quantities bought are 85 shares, calculate the fractional quantities index and explain its meaning. Fractional quantities balance Indicator = Fractional quantities sales Fractional quantities purchases. The fractional quantities index = 120/85 = 1.41. This means that the value of the indicator is greater than 1, which means sales of fractional quantities are more than purchases of fractional quantities. Therefore, technicians who sell take an anti-market stance and buy. 9  Second ; short selling Short selling is the sale of a security with the intention of buying it later at a lower value, The short sale percentage is calculated by the following formula: Short Selling Ratio = Daily Average Short Trades Daily Average For deals. for the volume of deals that are concluded (the denominator of the ratio). Stock exchanges usually announce it moment by moment. As for the volume of short selling deals (the numerator of the ratio), they are usually published on a monthly basis, and then the daily average can be found by dividing them by the number of working days in the month. technical analysts interpret the large amounts of short selling as a sign that the market is close to the bottom, and therefore the high percentage is evidence that the point The shift is close, and the technicians have to be 10 optimistic and start buying stocks, and on the contrary, when the percentage decreases.  Example If you know that the Average Short Trades issued by the New York Stock Exchange for the month of March 2023 is 1200 deals, and that the number of working days during the month is 25 working days, and the Daily Average For deals is 192 deals. Calculate the short selling percentage and explain its meaning. First, we calculate the average daily selling deals = the number of deals during the month the number of working days. = 1200 / 25 = 48 sales per day. Second , we calculate Short sale ratio = = 48/192 = 0.25 25% This means that the percentage of short selling represents 25% of the volume of transactions, which is a low percentage, and that investors tend to buy more 11 than sell.