Technical Analysis for Market Prices PDF

Chapter (5) Technical Analysis for Market Prices This chapter aims to familiarize the reader with the following: 1-Measures of direction of investors 2- counterpoint of view indicators.  Technical Analysis of Market Prices...

Chapter (5) Technical Analysis for Market Prices This chapter aims to familiarize the reader with the following: 1-Measures of direction of investors 2- counterpoint of view indicators.  Technical Analysis of Market Prices The tools of technical analysis of market prices mean market indicators that aim to determine the direction of prices, that is, if they are heading upwards or heading downwards. Since the prices of securities move together in long periods of decline or rise, the market trend is the main factor in determining the timing of buying or selling securities, and in fact this matter is the most important factor in technical methods. 1-Measures of direction of investors First: Barron's Confidence Index. Second: The Index of the upper and lower levels. Measures of Sentiment and Direction of Investors Here we find a set of metrics, which we mention as follows: Barron's Confidence Index It is an indicator published weekly by the American Barron's magazine. The following equation explains how to measure it: Confidence index = (Return on high-quality bonds / return on medium-quality bonds) x 100. 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 if the yield of high-quality bonds is usually lower than the yield of medium-quality bonds. As for the idea of the index, it is based on the fact that when investors have great confidence in the market and they are optimistic about the future, then it is expected that the demand for bonds that involve greater risks will increase, and the expected market result for those bonds will decrease their return -accordingly -to approach the yield of high-quality bonds, to approach The ratio of the index to 100% and vice versa becomes true if the investor's confidence in the market is weak. In general, the value of the index usually ranges between 85% and 95%. If so, Barron's scale can help the investor in the timing of the investment decision. When the value of the confidence index is on the rise, this means that the general economic situation is good, and that market prices will tend to rise more and more in the future, and then the timing is appropriate for buying, but if the value of the indicator is declining, this means that the economic situation is The general is not encouraging, and market prices will tend to fall more and more in the future, which means that the timing is right for selling. Problem (1) " If you know that the average return of 10 high-quality bonds is 9%, and the average return of 10 low-quality bonds is 10%. Calculate Barron's confidence index and explain its meaning. " Barron's Confidence Index = Average return on high-quality bonds average return on medium-qualíty bonds x 100. " 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%. The Upper and Lower Levels Index 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 indicator: Index of high and low levels =d/ (d + d) Where: Drepresents 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. As it seems, the value of the indicator must range between zero and one. If the value of the index is close to the correct 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 indicator 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 indicator is greater than 0.9, then it is considered an indication that the stage of rising prices has reached its end, In the sense that it is on its way down again, the indicator gives the investor the information he wants regarding the timing of the investment decision, and whether it is a decision to buy or sell. medium-quality bonds. As for the idea of the index, it is based on the fact that when investors have great confidence in the market and they are optimistic about the future, then it is expected that the demand for bonds that involve greater risks will increase, and the expected market result for those bonds will decrease their return -accordingly -to approach the yield of high-quality bonds, to approach The ratio of the index to 100% and vice versa becomes true if the investor's confidence in the market is weak. In general, the value of the index usually ranges between 85% and 95%. If so, Barron's scale can help the investor in the timing of the investment decision. When the value of the confidence index is on the rise, this means that the general economic situation is good, and that market prices will tend to rise more and more in the future, and then the timing is appropriate for buying, but if the value of the indicator is declining, this means that the economic situation is The general is not encouraging, and market prices will tend to fall more and more in the future, which means that the timing is right for selling. Problem (1) " If you know that the average return of 10 high-quality bonds is 9%, and the average return of 10 low-quality bonds is 10%. " Calculate Barron's confidence index and explain its meaning. " Barron's Confidence Index = Average return on high-quality bonds average return on medium-quality bonds x 100. " 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%. The Upper and Lower Levels Index 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 indicator: 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. As it seems, the value of the indicator must range between zero and one. If the value of the index is close to the correct 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 indicator 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 indicator is greater than 0.9, then it is considered an indication that the stage of rising prices has reached its end, In the sense that it is on its way down again, the indicator gives the investor the information he wants regarding the timing of the investment decision, and whether it is a decision to buy or sell. Problem (2) 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 Which means that the market is still going up and that we are still in the buying phase and have not reached the 0.9 level. The Ratio of rise and fall It is measured as follows: aspect ratio =the number of shares that achieved an increase the number of shares that achieved an increase or decrease. Proponents of this measure claim that when the ratio is 0.6 or greater it is an indication that the market's bullish trend is coming to an end. If the ratio reaches 0.35, this means that the downward trend has reached its limit, and that prices will soon go up. But if the ratio was 0.6 or more and then began to decline, this is an indication of a steady downward trend in prices. Of course, this information is useful for timing investment decisions.  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 considering them, opposite decisions are taken. It is agreed the information available to small investors is usually less than that available to professional investors, and therefore their making wrong investment decisions is a possibility. In addition, it has been observed that small investors, even if they have information, usually wait for a long time before seizing an available opportunity. For example, when prices take an upward trend, they do not respond quickly enough. Rather, they usually take the decision to buy when prices have reached or are close to reaching their highest possible level, and therefore when they start issuing orders to buy, the time is appropriate for the professional investor to issue orders to sell. One of the most common of these measures is the fractional quantities balance indicator, seling exposed. 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. Problem (3) If you know that the fractional quantities sold are 85 shares on the Tokyo Stock Exchange, and the quantities bought are 120 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. 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. 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 monthly, and then the daily average can be found by dividing them by the number of working days in the month. Small investors usually view the short selling process as a great risk, and they only undertake this process when they feel that there is no risk, and 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 optimistic and start buying stocks, and on the contrary, when the percentage decreases. Problem (4) " If you know that the daily average of sales deals 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 that the average daily deals is 192 deals. " Calculate the short sale 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. AS TO OT Snot seling deals (tne numerator or tne ratlO), hey are usuaiy pubisned montniy, and tmen tne dally average can be found by dividing them by the number of working days in the month. Small investors usually view the short selling process as a great risk, and they only undertake this process when they feel that there is no risk, and 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 optimistic and start buying stocks, and on the contrary, when the percentage decreases. Problem (4) " If you know that the daily average of sales deals 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 that the average daily deals is 192 deals. " Calculate the short sale 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. Short sale ratio = = 48/192 =0.25. 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 than sell. Professional Investor Metrics It is believed that the deals carried out by the professional investor are the deals concluded by specialized investment institutions, senior owners, managers, and specialists, and they are considered among the investors who obtain information that is not available to the public because of their position within these companies, and this information enables them to obtain large returns, so it is advisable to track their decisions Investment, and among the indicators that are used to know the trends of professional investors is the percentage of short selling, the large quantities index. Short selling Percentage by Specialists Short selling is the sale of a security with the intention of buying it later ata lower value, Short selling by specialists, as the percentage of short selling by specialists = short sales by specialists / total short sales, and the normal percentage of short selling by specialists is about 40%, and technicians view the decline of this percentage to less than 30% as a sign of optimism because it means that specialists reduce the process of participating in short selling, and on the contrary, an increase in this percentage of 50% is considered a sign of pessimism and is a sign of a bear market. It is noted that this percentage faces some problems that limit its usefulness, the most important of which is the existence of a time difference that may be more than two weeks between the occurrence of short selling operations for specialists. And presenting data about it, during which market conditions may change, and thus not benefiting from the results of the index. Specialists may resort to covering their trends or positions to mislead those who follow them. The large Quantities Index It means deals that range from 50,000 shares or more in a single deal, which are concluded by the institutional investor, and therefore the tracking of these deals by others is fruitful, as the conclusion of these deals at higher prices than before is an indication of investor enthusiasm and explains the trend of prices towards an increase. The appropriate timing for the purchase, and vice versa, if it was concluded at lower prices than before, then it is an indication of the seller's decline in the desire to encourage investors and explains the trend of prices downward. The indicator is calculated according to the following: Large volumes index = the number of transactions at upward prices the number of transactions at upward or downward prices. The numerator of the index means the number of large transactions concluded at prices higher than the price at which the last transaction was concluded. As for the denominator of the index, it means the number of large deals that were concluded at a price higher than the price at which the last deal was concluded, in addition to the number of deals that were concluded at a price lower than the price at which the last deal was concluded. As for deals that are concluded at the same price as the last deal, they are not taken into consideration. reckon. The index value ranges from 0-1. The closer the value of the index is to zero, this is an indication of the direction of the prices towards a downward trend, but if the value of the indicator is close to the correct one, then the market prices are heading towards the ascendancy.