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Technical Analysis
By Anna Zhang, Calvin Ma, Sunny Kanchanawong
What is Technical Analysis?

Fundamental Analysis:
• Valuate company using past performances, financial
  status, and future growth.
• The key is to find undervalued stock

Technical Analysis
• Intrinsic value of company does not matter; it’s what
  investors are willing to pay
• Observe behaviors within the market
• Past occurrences can predict future actions
What we look at

Fundamental Analysis: net income, cash, cash flow,
  growth etc.
Technical Analysis: price and volume.

Price : how much it’s worth in the market, its movement
  over time
Volume: the strength of movement. When the price goes
  up, is it because lots of people start moving into the
  market? Or is there already lots of people in it?
Charts – Candlesticks




• Started in Japan in 1700s for rice trade
• There’s a link between price and supply & demand of rice BUT
  there’s also the emotions of traders.
• Thus, there’s a difference between the price and the value of rice
  caused by trader emotions.
• The candlestick chart analysis measures the market emotions.
• Thus, reflect the short-term outlooks
Charts – Candlesticks
Charts – Candlesticks

• Long body –
  • Price of stock was in wide range during trading
    session
  • Open near low/high and closed near high/low of day
  • Tells us… bearish or bullish
• Small body –
  • Price of stock varied but…
  • Open and closed near the same price
  • Is neutral or indecisive of market
Charts – Candlesticks

• Look at the trend of the market preceding the
  pattern
• Hanging Man – when it is after a rally, it can
  suggest a beginning of a downward trend.
  •   Lower shadow is about 2-3x as long as body
  •   Little to no upper shadow
  •   Body is at the upper end of range
  •   Black body is more bearish than white
Charts – Candlesticks
• Lucent Technologies
   • 3 days of stock price rising
   • Then hanging man appears
   • Next day, stock price drops over 20%




                                            From investopedia.com
Charts
Support & Resistance
 Support: a level where buyers are willing to buy; reenter the market
 Resistance: More selling than buying, investors believe price too high


                                                                               Resistance




                                                                             Support




*There is no definite value of support and resistance level, only a Range of price.*
Trend
• a movement in one direction, until there’s a shift in the force of
 demand and supply causing the reverse
• doesn’t necessary be a smooth line
Up Trend

• Higher highs and higher lows
Down Trend

•   lower highs and lower lows
Neutral Trend

• trendless market, have both support and resistance


                                                        Resistance




                                                       Support
Moving Averages (MA)

• What’s MA?
  • It smooth out price data and observe the general
    direction of movement for a stock.


• Types of MA:
  • 10-day, 20-day, 50-day, 100-day, 200-day


• Function:
    1.Signal to Buy/Sell
    2.Support
MA – Signal to Buy

• Key: Crossover & Movement

• ST: 10-day MA crosses 20-
  day MA          Moving
  Upwards
• MT: 10-day MA & 50-day MA;
  Up
• LT: 10-day MA &100-day MA;
  Up
    Signal to Buy/Sell   Support
MA – Signal to Sell

• ST: 10-day MA crosses 20-day
  MA Moving Downwards
• MT: 10-day MA & 50-day MA;
  Down
• LT: 10-day MA &100-day MA;
  Down

• The Longer the Time Frame,
  The Stronger the Signal Is
    Signal to Buy/Sell         Support
MA – Example 1: Google (GOOG)




   Signal to Buy/Sell   Support
MA – Example 2: Apple (AAPL)




    Signal to Buy/Sell   Support
MA – Example 3: OXPS




   Signal to Buy/Sell   Support
MA – Example 4: JSC Tatneft (TNT)




    Signal to Buy/Sell   Support
MA

• What’s MA?
  • It smooth out price data and observe the
    general direction of movement for a stock.


• Types of MA:
  • 10-day, 20-day, 50-day, 100-day, 200-day


• Function:
     1.Signal to Buy/Sell
     2.Support

     Signal to Buy/Sell             Support
MA – Support
                         Example: OXPS

        •Strong support have been shown
        at 10 & 20 MA
        •Seldom fell below 50 MA




   Signal to Buy/Sell                     Support
MA – Testing Support
               Example: AAPL

        •Strong support have been shown
        at 20 MA
        •Seldom fell below 50 MA



                                          •Price fell down the 20 MA
                                          test for 50 MA
                                          •Price fell down the 50 MA
                                          • test for 100 MA




   Signal to Buy/Sell                          Support
Oscillators

• Signal the change by comparing rate of change in price action.
 Compare to the past, has it move very far away?
• Usually signal overbought and oversold
• be careful: it might just be the beginning of the trend, only use it
 in trading in neutral market
• Examples of oscillators used:

  -Relative Strength Index (RSI)
  -Moving Average Convergence Divergence (MACD)
  -Stochastic
  etc.
Relative Strength Index (RSI)

 Measure the buying and selling forces, range between 0 and 100
                     RSI = 100 - 100/(1 + RS)
RS = Average of x days’ up closes/ Average of x days’ down closes
Moving Average Convergence
Divergence (MACD)
MACD line: subtracting 26-day exponential MA from 12-
 day EMA
Signal line: 9-day EMA of MACD

What is EMA?
  - it’s a weighted MA, giving more emphasis to more recent
  trading days

Crossovers:
      MACD falls under signal line            bearish
      MACD rises above signal line            bullish
MACD
Stochastic

Theory:
  In an uptrend market, closing prices tend to be near the highs
  In a downtrend market, closing prices tend to be near the lows

%K line and %D line

       %K = 100[(C - L14)/(H14 - L14)]

       C      = current closing price
       L14    = lowest low price during 14-day period
       H14    = highest high during 14-day period
       %D     = %K smoothed over three days
Stochastic
Conclusion

• When to use technical analysis:
  • looking for short-term
  • Indicators are only indicators
• When fundamental analysis is more
  appropriate
  • Long-term
• Or combine both

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03.07.06 technicalanalysis

  • 1. Technical Analysis By Anna Zhang, Calvin Ma, Sunny Kanchanawong
  • 2. What is Technical Analysis? Fundamental Analysis: • Valuate company using past performances, financial status, and future growth. • The key is to find undervalued stock Technical Analysis • Intrinsic value of company does not matter; it’s what investors are willing to pay • Observe behaviors within the market • Past occurrences can predict future actions
  • 3. What we look at Fundamental Analysis: net income, cash, cash flow, growth etc. Technical Analysis: price and volume. Price : how much it’s worth in the market, its movement over time Volume: the strength of movement. When the price goes up, is it because lots of people start moving into the market? Or is there already lots of people in it?
  • 4. Charts – Candlesticks • Started in Japan in 1700s for rice trade • There’s a link between price and supply & demand of rice BUT there’s also the emotions of traders. • Thus, there’s a difference between the price and the value of rice caused by trader emotions. • The candlestick chart analysis measures the market emotions. • Thus, reflect the short-term outlooks
  • 6. Charts – Candlesticks • Long body – • Price of stock was in wide range during trading session • Open near low/high and closed near high/low of day • Tells us… bearish or bullish • Small body – • Price of stock varied but… • Open and closed near the same price • Is neutral or indecisive of market
  • 7. Charts – Candlesticks • Look at the trend of the market preceding the pattern • Hanging Man – when it is after a rally, it can suggest a beginning of a downward trend. • Lower shadow is about 2-3x as long as body • Little to no upper shadow • Body is at the upper end of range • Black body is more bearish than white
  • 8. Charts – Candlesticks • Lucent Technologies • 3 days of stock price rising • Then hanging man appears • Next day, stock price drops over 20% From investopedia.com
  • 10. Support & Resistance Support: a level where buyers are willing to buy; reenter the market Resistance: More selling than buying, investors believe price too high Resistance Support *There is no definite value of support and resistance level, only a Range of price.*
  • 11. Trend • a movement in one direction, until there’s a shift in the force of demand and supply causing the reverse • doesn’t necessary be a smooth line
  • 12. Up Trend • Higher highs and higher lows
  • 13. Down Trend • lower highs and lower lows
  • 14. Neutral Trend • trendless market, have both support and resistance Resistance Support
  • 15. Moving Averages (MA) • What’s MA? • It smooth out price data and observe the general direction of movement for a stock. • Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day • Function: 1.Signal to Buy/Sell 2.Support
  • 16. MA – Signal to Buy • Key: Crossover & Movement • ST: 10-day MA crosses 20- day MA Moving Upwards • MT: 10-day MA & 50-day MA; Up • LT: 10-day MA &100-day MA; Up Signal to Buy/Sell Support
  • 17. MA – Signal to Sell • ST: 10-day MA crosses 20-day MA Moving Downwards • MT: 10-day MA & 50-day MA; Down • LT: 10-day MA &100-day MA; Down • The Longer the Time Frame, The Stronger the Signal Is Signal to Buy/Sell Support
  • 18. MA – Example 1: Google (GOOG) Signal to Buy/Sell Support
  • 19. MA – Example 2: Apple (AAPL) Signal to Buy/Sell Support
  • 20. MA – Example 3: OXPS Signal to Buy/Sell Support
  • 21. MA – Example 4: JSC Tatneft (TNT) Signal to Buy/Sell Support
  • 22. MA • What’s MA? • It smooth out price data and observe the general direction of movement for a stock. • Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day • Function: 1.Signal to Buy/Sell 2.Support Signal to Buy/Sell Support
  • 23. MA – Support Example: OXPS •Strong support have been shown at 10 & 20 MA •Seldom fell below 50 MA Signal to Buy/Sell Support
  • 24. MA – Testing Support Example: AAPL •Strong support have been shown at 20 MA •Seldom fell below 50 MA •Price fell down the 20 MA test for 50 MA •Price fell down the 50 MA • test for 100 MA Signal to Buy/Sell Support
  • 25. Oscillators • Signal the change by comparing rate of change in price action. Compare to the past, has it move very far away? • Usually signal overbought and oversold • be careful: it might just be the beginning of the trend, only use it in trading in neutral market • Examples of oscillators used: -Relative Strength Index (RSI) -Moving Average Convergence Divergence (MACD) -Stochastic etc.
  • 26. Relative Strength Index (RSI) Measure the buying and selling forces, range between 0 and 100 RSI = 100 - 100/(1 + RS) RS = Average of x days’ up closes/ Average of x days’ down closes
  • 27. Moving Average Convergence Divergence (MACD) MACD line: subtracting 26-day exponential MA from 12- day EMA Signal line: 9-day EMA of MACD What is EMA? - it’s a weighted MA, giving more emphasis to more recent trading days Crossovers: MACD falls under signal line bearish MACD rises above signal line bullish
  • 28. MACD
  • 29. Stochastic Theory: In an uptrend market, closing prices tend to be near the highs In a downtrend market, closing prices tend to be near the lows %K line and %D line %K = 100[(C - L14)/(H14 - L14)] C = current closing price L14 = lowest low price during 14-day period H14 = highest high during 14-day period %D = %K smoothed over three days
  • 31. Conclusion • When to use technical analysis: • looking for short-term • Indicators are only indicators • When fundamental analysis is more appropriate • Long-term • Or combine both