Bullish gap up - NUS Investment Society

Report
NUSInvest Workshop Series
Session One
Introduction to FA/TA
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FA vs TA
FUNDAMENTAL ANALYSIS
Fundamental analysis of a business involves analyzing
its financial statements and health, its management and
competitive advantages, and its competitors and
markets.
Economic
Analysis
Industry
Analysis
Company
Analysis
TECHNICAL ANALYSIS
The study of market action, primarily through the use
of charts, for the purpose of forecasting future price
trends.
•
All information is reflected in price (responses & sentiments)
•
History repeats itself
•
Technical Analysis can be applied to different trading
mediums/markets/assets
FA vs TA
FUNDAMENTAL ANALYSIS
• Focuses on the economic forces
of Demand & Supply that
causes prices to move
• Finding the intrinsic value of
the market/asset
• Characteristics of a company is
employed in the analysis
• Effects of economic factors on a
stock such as earning reports,
cash flow, etc are concerned
TECHNICAL ANALYSIS
• Analysis using past data of
Demand & Supply
• Study of historical graphs is
stressed
• Identify a trend at a relatively
early stage & ride on that trend
until the weight of the evidence
shows or proves that the trend
has reversed
• Deals in probabilities, never
certainties
Efficient Market Hypothesis
 Criticisms of FA and TA
 3 Versions: Weak / Semi-strong / Strong
 Impossible to "beat the market" because stock
market efficiency causes existing share prices to
always incorporate and reflect all relevant
information
 EMH: stocks always trade at their fair value
(impossible to purchase undervalued stocks or sell
at inflated prices)
Intro to TA
Charts
• Candlesticks stresses relationship between open and close prices
Candle Anatomy
•
Body: Distance between open and closing
•
Tip of upper wick/shadow: Highest price of
that period
•
Bottom of lower wick/shadow/hair: Lowest
price of that period
•
Range (length) of candle stick indicates
volatility
•
Upward candlestick usually
or green
or blue
•
Downward candlestick usually black or red
Bearish
Candle
Bullish
Candle
Gaps
• Gap: Current open is not the same as
prior closing price
• No price and no volume transacted
hands between the gap (area on price
chart where there is no trades)
• Effect of news after stock market closed
for the day (e.g. earnings report)
• Psychology: Can act as resistance/
support (news that sparked the gap is
still in play)
Daily Chart – Wal-Mart (WMT)
1 Price-Bar Pattern
Hammer
•
•
•
•
Found in downtrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least
twice the length of real-body
• Signals: Reversal pattern when
found in a downtrend
• Short-term outlook indication
• Real body can be black or white
(white: stronger signal)
Hammer
• Low reliability, requires confirmation
– Bullish gap for next session
– Subsequent session shows white real body above that of
the hammer’s real body
Buyers drive prices back up
to close near the highs
• Significance/ Strength:
– Length of Lower Shadow
– Colour
Long lower wick indicates initial selling prices
BACKGROUND
1-BAR
PATTERN
2-BARS
PATTERN
3-BARS
PATTERN
PRICE TRADING
STRATEGIES
Hanging Man
•
•
•
•
Found in uptrend
Short body at the top of price range
Little to no upper shadow
Lower shadow must be at least
twice the length of real-body
• Warning of a potential downward
• Short-term outlook indication
• Also requires confirmation
Hanging Man
Greater gap: Higher likelihood of reversal
1. Uptrend
2. Gap Up
3. Lower Shadow at
least twice as big as
Real Body
4. Real Body Bullish or
Bearish; better if
Bearish
5. Confirmation
Candle
Shooting Star
• Found in uptrend
• Short body at the bottom of price
range
• Little to no lower shadow
• Upper shadow must be at least
twice the length of real-body
• Signals: Reversal pattern
• Short-term outlook indication
• Real body can be black or white
(black: stronger signal)
Shooting Star
• Low reliability, requires confirmation
– Bearish gap for next session
– Subsequent session shows black real body below that of
the shooting star’s real body
• Significance/ Strength:
– Length of Upper Shadow
– Colour
Long upper wick indicates
initial buying prices
Open
Bears were able to reject
bulls completely (or push prices even
lower by closing below open)
Shooting Star
1. Uptrend
2. Upper shadow at
least twice as big as
real body
3. Real body bullish
or bearish (bearish:
stronger indication)
Inverted Hammer
• Found in downtrend
• Short body at the bottom of price
range
• Little to no lower shadow
• Upper shadow must be at least
twice the length of real-body
• Signals: Reversal pattern
• Short-term outlook indication
• Real body can be black or white
(white: stronger signal)
Inverted Hammer
Spinning Top & Doji
• Short body in the middle of two long
wicks
• Market closed relatively unchanged
• Indicates indecision (‘standoff’ after
significant price movement)
• Trend losing momentum; possible
turning point
• Doji/ Long-legged Doji: stronger
signal
• Open and close are the same
• Insignificant in sideway markets
Buyers in control
Sellers in control
More Doji Patterns
Dragonfly Doji
• Long lower, no
upper
Gravestone Doji
• Long upper, no
lower
Four Price Doji
• Same upper,
lower, open & close
• Very rare
• Low volume
situations
2 Price-Bars Pattern
Bullish Engulfing Candle
When found in a downtrend:
• Bullish candle opens lower than
previous candle’s close, closes
higher than previous candle’s open
• Potential sign that trend is reversing
• Indicates control has shifted from
sellers to buyers
Gap down
Bearish Engulfing Candle
When found in a uptrend:
Gap Up
• Gap up: Bullish sign
• But: Bulls only push prices up
slightly before bears take over and
push prices much lower
• Potential sign that trend is reversing
• Indicates control has shifted from
buyers to sellers
Bullish Engulfing
1. Downtrend
2. Bearish Candle
3. Gap Down
4. Bullish Candle
5. Close above
previous Bearish
Candle
3 Price-Bars Pattern
Morning Star
• Consists of 3 candlesticks
• Bearish Gap: Bears are in control
during opening
• Day 2: Prices are not pushed much
lower (small / neutral candlestick)
– Bullish: stronger sign
• Day 3: Bullish gap up
• Prices pushed further upward,
sometimes eliminating all Day 1 losses
Evening Star
• Consists of 3 candlesticks:
- Bullish, Small/ Neutral, Bearish
• Presence of bullish gap, bearish gap
• Day 2: Prices are not pushed much
higher
– Bearish: stronger sign
• Day 3: Large bearish candlestick
• Prices pushed further downward,
sometimes eliminating all of Day 1’s
gains
Evening Star
1. Uptrend
2. Bullish Candle
3. Gap Up
4. Small Bullish/
Bearish Candle
5. Gap Down
6. Bullish Candle
Morning Star Pattern
Many other chart and
price patterns, indicators,
theories…
CHART
CONSTRUCTION
SUPPORT &
RESISTANCE
Reversal Patterns
CHART
CONSTRUCTION
SUPPORT &
RESISTANCE
Others
•
•
•
•
•
•
•
•
Fibonacci
Continuation Patterns
Moving averages
Oscillators and momentum indicators
Pivot Points
Trading Divergences
Elliott Wave Theory
…
Resources
• Babypips.com
• Forexfactory.com
Intro to FA
Basics of FA
 Buy and Hold
 Latch onto a good business and allow investor’s assets to
grow with the business
 Value Investing
 Seek under-valued companies
 Dividend Investing
 Seek blue chip stocks that generate dividends consistently
Basics of FA
 Top-Down Approach
 Starts with analysis of global economics
• E.g. GDP, Interest Rates
 Narrows down to regional/industry analysis
• Total sales, trends, Growing/Sunset
Basics of FA
 Bottom-Up Approach
 Starts with specific businesses, regardless of
industry/region
Basics of FA
 Qualitative & Quantitative
 Intrinsic Value (true value, not necessarily
market price)
 Find opportunities to buy at a discount
 Wait for investment to pay off when market
catches up
Industry Factors
• Industry life cycle
– Emerging, Growth, Maturity, Decline
• Key Trends
– E.g. Airlines: Fuel Cost; Jewellery: Gold Price;
REITs: Interest rates
Company Factors
• Business Model
• Competitive Advantage
• Management (ownership - founder? Insider
shareholdings?)
• Market Share
– Competitors’ Performance
Financial Ratios
• 5 types of financial ratios
Liquidity
Solvency
Profitability
Efficiency
Market
value
Price Earning Ratio (P/E)
• Price of Share divided by Earnings per share (EPS)
• Values the share based on earnings
• The lower the PE compared to similar companies the
better the value
• However, more research the reason behind low
valuations
EBIT
• Earnings Before Interest and Taxes
• Adds Interest and Tax Expense to NI
• Gives a clearer picture of company’s ability to
generate profits
• By taking away distortions from financing cost
and tax structure
EBITDA
• Earnings Before Interest Tax Depreciation
Amortization
• A PROXY of Operating cash Flow
• Important in determining firm’s ability to
generate cash
Price to Book Ratio (P/B)
• Compares stock’s market value to its book value
• A low P/B ratio could mean that the stock is
undervalued
• Also gives some idea of whether you’re paying too
much for what would be left if the company goes
bankrupt
Earnings per Share (EPS)
• The only financial indicator companies are mandated
to provide in their annual report
• One of the most important indicators of profitability
• Shows the ability of each share in generating
accounting profits
• Trend is important in analyzing EPS
Debt to Equity
• Most common leverage ratio
• Shows us the capital structure of the firm
• Can indicate financing expenditure, solvency
of the firm
Profit margin
• Net Profits/Net Sales
• Shows efficiency of revenue in generating
profits
• Important in evaluating efficiency within the
industry
Return on Equity
• Net Income / Total Equity
• Shows how much of income is attributable
to equity holders
• Also shows how efficient company is
generating profits with given capital
Other Ratios
• Current Ratio
• only measures short term liquidity status
• Current Assets / Current Liabilities
• Return on Assets (ROA)
• More…
Resources
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•
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•
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Bloomberg terminal
Bloomberg.com
Investopedia.com
SGX.com
Equity Research Reports
Thank You! 
CHART
CONSTRUCTION
SUPPORT &
RESISTANCE

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