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CORPORATE FINANCE AND CONTROLLING

CASE-6 (WS-2018)
Technical Analysis

Submitted by: -
Avinash Kumar
S0567984
MBAE Automotive Management

Guided by: -
Dr. Thomos Rachfall
Table of Contents
Executive Summary……………………………………………………………………………………………ii

List of Abbreviations…………………………………………………………………………..…………….iii

List of Tables………………………………………………………………………………………………..…..iii

1. Introduction- …………………………………………………………………………………………..………….1

2. Technical Indicators…………………………….…………………………………………………..………….1
2.1 Volume……………..………….……………………………………………………………………………….1
2.2 Simple Moving average……………………….…………………………………………………………1
2.3 Exponential Moving average………………………………………………………………………….2
2.4 Moving average convergence and divergence………………………………………………..2
2.5 Trend Line………………………………………………………………………………………………………2

3 Analysis and Incites of the company…………...…………………………..….……………………….3


3.1 Ford Motor Company……………………………………………………………………………………..3
3.2 Bayer………………………………………………………………………………………………………………3
3.3 Nike………………………………………………………………………………………………………………..3
3.4 Walt Disney…………………………………………………………………………………………………….4
3.5 Colgate Palmolive…………………………………………………………………………………………..4
3.6 eBay……………………………………………………………………………………………………………….4

4 Forecasting of Share Prices.…………………………………………………………………………………5

5 Potential Buying and Selling.……….………………………………………………………….……………5


5.1 Ford Motor Company……………………………………………………………………………………..6
5.2 Bayer………………………………………………………………………………………………………………6
5.3 Nike………………………………………………………………………………………………………………..6
5.4 Walt Disney…………………………………………………………………………………………………….7
5.5 Colgate Palmolive…………………………………………………………………………………………..7
5.6 eBay……………………………………………………………………………………………………………….7

6 Conclusion……………..……………………………………………………………………………………………8

7 References…………………………………………………………………………………………………………..9

8 Appendices…..……………………………………………………………………………………………………..10

TECHNICAL ANALYSIS_AVINASH KUMAR_HTW BERLIN i


Executive Summary
The contextual exercise gives an introduction and use of technical indicators in from the
perspective of a trader. The technical indicators along with the patterns and trends are used to
analyze the stock market and share price development of the stocks. These indicators are
usually based on the current market trends and the previous prices of the stock.

In the exercise we will be analyzing the stock price developments of the given six companies
in terms of the patterns and trends seen in them over a year along with the technical indicators
like simple moving averages, exponential moving averages, volume and Moving average
convergence and divergence.

We will also try to forecast the stock price of the company 4 weeks from now i.e. on 18th
January 2019 with the help of simple moving average.

At the end we will also do an analysis based on consecutive four days data of the company and
try to find the buying and selling points from a short-term trader’s perspective.

The Companies analyzed are as follows: -

TECHNICAL ANALYSIS_AVINASH KUMAR_HTW BERLIN ii


List of Abbreviations Used

SMA Simple Moving Average


EMA Exponential Moving Average
MACD Moving Average Convergence and Divergence

List of Tables

Table 1 Forecasting of Stock prices

TECHNICAL ANALYSIS_AVINASH KUMAR_HTW BERLIN iii


Technical Analysis Case Avinash Kumar

1. Introduction
Technical analysis is a technique that analyses the stock and future trends of a company
based on the technical indicators. It employs trading rules based on the price and volume
transformations, like relative strength index (RSI) and moving averages by analyzing trend
patterns in the stock chart of a company. The technique is purely based on the price and
volume behavior of the market and does not considers the fundamental key performance
indicators of a company.
In the following exercise the six given companies are analysed based on the principles of
technical analysis and a prediction for the future developments and trends in the stock price
are evaluated. The technical analysis is usually used for short term trading’s and is an
important method used by the day traders. As the technical analysis is based on the market
behaviour and patterns it is always a matter of debate among people for its authenticity.

2. Technical indicators
In technical analysis a technical indicator is a figure based on the historical stock prices,
volume traded and open information’s of interest that are used to forecast financial market
situation. Technical indicators are fundamental part of technical analysis which are plotted
as chart patterns to analyse the trend in the stock movement of a company. Indicators for
the most part are plotted against the stock price development to show the direction of the
flow of its cost, or whether a cost is in overbought or oversold condition.
The indicators give a confirmation for the price movement, and the probability for the trend
continuation. Basically, these indicators are utilised as a measure to increase further
knowledge about the supply and demand of the stock securities. Following are some of the
commonly used technical indicators for the analysis purpose: -

2.1. Volume
In simple terms the volume is a technical indicator signifying the quantity or amount
of financial resources that have been exchanged in a given time period. A growing
business sector should have a rising pattern in its volumes. The buyer of a stocks needs
expanding volume or the excitement to buy among the other buyers to push the stock
prices of firm. Rising stock price and reduction in the volume of stock shows the lack
of interest of buyers and usually signifies the possibility of a reversal in pattern. Price
change with a little volume is not a solid sign as it shows that the trend is being affected
by a smaller number of traders in the market. A price change with large volume is more
grounded sign that something in the stock has changed.

2.2. Simple moving average


A simple moving average (SMA) is the technical indicator value calculated by adding
the closing prices of the securities in the given time period and then dividing it by the
number of time periods, here each closing price has been given equal weightage. For
the analysis in the exercise two SMA have been taken one with longer time period and
other with shorter time period. Usually a shorter time period SMA responds more
quickly than a longer time period SMA to the change in trend. Traders usually look for

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shorter time period SMA to crossover the longer SMA in order to get and signal for an
uptrend. While a longer SMA crossing over shorter SMA will signify a downwards
trend. Shorter SMA can also act as a support line when the stock prices start
experiencing a fall.

2.3. Exponential moving average


Exponential moving average (EMA) is similar to simple moving average but the
weightage to the closing stock values are given differently. Here the last closing price
is given more weightage as compared to its previous closing price and so on, hence,
the first closing price in the time period is given least weightage in calculating the
EMA. This responds more quickly to the recent price changes than SMA. EMA’s can
be analysed in a similar way of SMA. Both SMA and EMA are lagged as they are
based on the past stock prices. Despite of their lags, moving averages help smoothen
the price action. EMA reduces this lag as it gives more weightage to the most recent
prices.

2.4. Moving average convergence divergence (MACD)


It is a trend following indicator that demonstrates the relationship between two moving
averages of stock price. The MACD curve or line is drawn by subtracting the 26-day
exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the
MACD, called the "signal line", is then plotted on top of the MACD, working as a
trigger for buy and sell. The MACD line or curve helps an investor to understand
whether a bullish or bearish movement in the price is strengthening or weakening.
When the MACD falls below the signal line, it is a bearish signal, which indicates that
it may be time to sell. Conversely, when the MACD rises above the signal line, the
indicator gives a bullish signal, which suggests that the price of the asset is likely to
experience upward momentum. When the stock price diverges from the MACD line,
it signals the end of the current trend.

2.5. Trend line


Trend lines is a way to measure the reaction of investors to the fluctuation of stock
prices. Aside from the technical indicators, different types of trend lines can be utilized
to judge whether a stock price can increase or decrease at a specific moment of time.
It should be possible by shaping lines on the stock development graph and giving a
higher and lower scope of change. The Resistance and Support pattern lines can be
framed to know the canal of the stock for a period of time. There are likewise other
trend lines like Shoulder-Head-Shoulder, Triple head inversion, triangle, and so on.
These pattern lines help investor to judge absolutely when the cost of the stock is about
to rise, fall or switch.

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3. Analysis and incites of companies


Analysis of the given six companies has been done over the data of past one year.

3.1. Ford motor company


The chart analysis for the Ford motor company is been done over the past one year.
From the Appendices figure 1 it can be seen that the price of the stocks over the year
has mostly been flat with little upward trend between march and June 2018. There are
not much significant technical indicators of a bearish or bullish, however in the January
last week and July 2nd week there is a strong bearish signal as it can be seen that MACD
line crosses the signal line from top to bottom with a high volume of stocks being
traded. The stock at that point was also towards the upper end of Bollinger band
signifying the declining of the stock prices. The area between the trend lines could
have been used for short term trading’s by buying the stocks at a point near to support
line and selling them off at a point near to or above the upper resistance line. There are
many crossings of the MACD line with the signal line but had a very minimal effect
on the trend pattern. The values of the stock over this year are not at all volatile as it
has always remained between the range of 8.5 to 11.5 after the drop from a value of 13
in the month of January. The drop after the January shows a significant fundamental
change in the company.

3.2. Bayer
The chart of the Bayer company for the past one year is also not much volatile, except
the fact that it encountered fall of 20$ in August. As seen from the Appendices figure
2. In the month of January, a Double top pattern can be observed which is a bearish
reversal pattern and after which a downfall in the stock prices can be observed. There
are very few significant MACD crossovers with the signal line and only two bearish
points can be seen in the 1st half of august 2018 month and mid of October 2018 month
after which the stock price declined significantly. The declining pattern was followed
by the increase in the volume of trades which clearly shows a fundamental change or
news with the company. A converging trend lines can be plotted as shown in the figure
2 starting in mid of august 2018. The converging trend lines have not broken out yet
before the closing of this stock, hence in coming trading day there is a possibility of
heavy movement of the stock towards a direction depending upon from which side the
stock breaks the trend lines plotted. There are also very short-term crossovers of both
SMA lines.

3.3. Nike
Over the past year of the Nike data (Refer Appendices figure 3) shows that there has
been gradual rise in the stock prices till the month of September 2018 after which it
has started to decline. There is a double top observed in the month of November 2018
after which the further downward trend of the stock started, hence it is a point one
should sell its stocks as the price started to go down. There a not many significant
crossings of MACD line with the signal line, however one significant Bearish and

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Bullish points in the figure has been marked. There is not much fluctuations in the
volume of the trades which shows holdings of the people and traders are waiting for a
significant signal to buy or sell the stocks. Two upward trend patterns can also be
observed in the figure where a short-term trader could have made some money. The
MACD deviations are always inline with the stock price developments. There are also
not very significant crossovers of the short term and long term SMA lines which could
be used to see a potential buying or selling point.

3.4. Walt Disney


The last one-year data of the Walt Disney (Refer Appendices figure 4) is little more
volatile than the previous three companies studied fluctuating between 97.5 and 117.5
in the whole year. From the analysis of technical indicators and patterns one can see
that there is a triple top formation at the start of this year signifying a drop in the stock
prices which can be seen in the month of February 2018. There are many positive
(Bullish) crossovers of the MACD line with the signal line but only for a very short
time, here the most significant crossovers have been marked in the figure 4. There are
two observed bullish signals and one bearish signal while the volume of the stock
seems little stable with few spikes around the triple top and the MACD crossovers with
the signal line. Towards the end of the figure after the month of October 2018 there is
a shoulder head shoulder formation which has breached the bottom resistance line last
week signifying a drop in the stock price. There are also very less SMA crossovers and
hence not much trend change can be identified.

3.5. Colgate Palmolive


The data of one year for the Colgate Palmolive (Refer Appendices figure 5) stock does
not show much volatility and very less trends or patterns as seen from the Appendices
figure 5. Also, there are very few MACD crossovers with the signal line. Two of the
most significant Bearish Signals have been marked in the figure occurring in the month
of January and April 2018. There is very high fluctuation in the volume of the trades.
Two trend canals can also be formed each after the Bearish signal in the figure which
could have been used by day or short-term traders to have some profit. Most of the
time the movement of the stock is pretty sideways not giving much room for technical
indicators or pattern analysis. After a Bullish crossover of the MACD line with signal
line after 15 May 2018 an upward trend of the stock started but as soon as it crossed
the bottom trend line the stock prices started falling. The changeovers in the pattern
can also be seen from the crossovers of the two SMA lines. The MACD lines of the
stock are always inline with fluctuation in the stock market.

3.6. eBay
Over the past one year, the stock prices of eBay (Refer Appendices figure 6) are pretty
sideways with falling slightly with time and all the volume fluctuations are inline with
the ups and downs in the stock price. Like Colgate Palmolive there are not much
significant trends or patterns in the stock but a double top could be observed in the

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month of March and April 2018 after which the stock prices started descending, though
there are no sign of Bearish as per the MACD line crossover as there is not much
significant drop. Towards the end of the year a converging trend lines can be formed
and we can see an overall rise in volume of the trades of this stock. The stock prices
have not yet broken the band before closing of the last day trades, hence one can expect
a momentum change in the stock prices for the coming day. Two other trend patterns
can also be seen in the stock prices as shown in the Appendices figure 6 which could
have been used for a small gain from the stock in short term trading.

4. Forecasting of Share Prices


The forecasting of the share prices can be done based on the SMA of the stocks. Here the
forecasting of the stock prices after 4 weeks from now is been conducted. The forecasting
for the stock prices on 18th of January 2019 is been conducted by taking the SMA of the
previous 30 days. As, in SMA equal weightage is given to each stock price closing, the
difference of SMA for 30 days and the last 30th day closing stock price as on 20th November
2018 will give us the delta available for the coming 30 days. Since the same moving average
is been expected in the coming 30 days, the delta value can be added or subtracted on the
20th December 2018 opening and closing stock prices to get an estimate for the stock value
in next 30 days. The decision of subtracting or adding the delta value can be taken
depending upon the crossover of the MACD line with signal line before the closing of the
stock. In the case of given six companies the MACD line has always intersected from top
to bottom and hence to forecast for the value in next 30 days the delta value have been
subtracted from the opening and closing values on 20th December 2018. Hence from the
following table1, one can see the expected values or prices of stock as on 18th of January
2019 unless and until there is any fundamental change in the company.

Closing Price Opening Price Closing Price Projected Projected


Company 30 day SMA Delta
(20-Nov-2018) (20-Dec 2018) (20-Dec 2018) Upper Value Lower Value
Ford 9.75 9.06 0.69 8.33 8.26 7.64 7.57
Bayer 67.5 61.02 6.48 61.09 61 54.61 54.52
Nike 75.5 71.12 4.38 68.73 67.53 64.35 63.15
Walt Disney 115.5 111.87 3.63 108.75 107 105.12 103.37
Colgate Palmolive 61.5 62.31 0.81 61.74 60.98 60.93 60.17
eBay 29 28.16 0.84 28.2 27.99 27.36 27.15
Table 1 (Forecasting of stock prices)

5. Potential Buying and Selling (Observation based on 4 consecutive days)


The following observations are based on the company stock price movements from
17-December-2018 to 20-December-2018. (Refer appendixes figure 7- figure12)

5.1. Ford
From the analysis of the 4 consecutive of Ford one can see that there are several MACD
line crossovers with the signal line signifying potential buy and sell options like the
first buying signal before the closer of the stock on the 17th December. After which a

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double top is observed just after opening of market on 18th December signifying a
potential downward trend which can be further confirmed based on the MACD line
crossing the signal line from top to bottom hence one should sell their stock
immediately. A significant downward trend is observed after that on the 18th of
December with the market closing with double bottom signifying a potential rise of
stock prices. The further strong buying signal can be seen with MACD line crossing
the signal line from bottom before the end of trading on that day. Further, with the
opening of the stock on next day an upward trend can be observed till we get a bearish
signal as marked on the figure which signals that one should sell its stock as there will
be a drop-in share price. At the of 19th day and start of 20th day again a double bottom
is observed signaling to buy the stock but again the price is signaled to get dropped as
MACD line crosses the signal line before 11:00 AM on the same day. Towards the end
of 20th December 2018, the stock forms a double top which signals that the stock prices
are going to follow a downward trend hence signifying a selling option.

5.2. Bayer
From the 4 days observation of the Bayer we can see that on the 17th December a
downward trend in the stock price can be observed which has been shown in the figure
with the formation of trend line. Towards the end of that day we can se that as soon as
the momentum breaks the upper trend line the stock prices starts to go up hence it is a
potential buying point as also the MACD line crosses the signal line from bottom.
Towards the closing of the day a Bearish signal can be observed signifying a potential
selling point of the stocks. As soon as the market opens the next day its share price
starts to fall down and after formation of a small double bottom the stock price rises to
a significant point hence one could have bought the shares at that point expecting a
price rise as also depicted by MACD line crossover. But soon after the rise there starts
the formation of double top which again signal the fall in stock prices strengthened by
the MACD line crossover. 19th December 2018 was a day mostly flat for Bayer with
little variation in stock prices, but at the end of the trading day the stocks sees a rise in
volume of trades and at around 4:00 PM a strong Bearish signal can be observed, hence
is a point to sell if holding the stocks. On the 20th December 2018 the stock still seems
to perform sideways with minor fluctuations with again a bearish signal implying to
sell the stocks.

5.3. Nike
As seen from the graph of Nike we can see that there were several occurrences and
signals for buying and selling of the stock. Starting on 17th December 2018 a signal of
Bullish can be observed as marked on the graph with MACD line crossing the signal
line from bottom and hence a buying signal. After that we can observe a double top
with MACD line crossing the signal line from bottom hence signaling a fall in prices
of the stock, so this is a pint at which one should sell its stocks. Furthers buying options
or opportunities can be observed towards the end of 17th December 2018. On the 18th
December 2018 the stock momentum is mostly flat though there are few MACD line

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crossovers. On 19th December 2018 after following a downward trend there are two
consecutive bearish signal pointing to sell the stocks. On the last day of observation,
the stock started with a low and a MACD crossover from bottom signifies a buying
opportunity, but as soon as the high is achieved the stock formed a double top again
signaling a potential selling point. After the double top the stock prices followed a
downward momentum.

5.4. Walt Disney


From the graph of Walt Disney one can observe the downward trend of the stock on
the 17th December 2018. Though there are several ups and downs and MACD line
crossovers we cannot rely on them as the stock is following a downward trend with
very little active traders. On the afternoon of the day there is a crossover of MACD
line with MACD line crossing from above signifying the potential selling point on the
day. After which the stock entered into a downward momentum. Though there are still
buying signals of MACD line crossing over the signal line from bottom one should not
buy stocks as the momentum of stocks is following a downward trend on 18th
December 2018. At the end of the day there is again a MACD line signifying a buying
point and the trend starts to move in upward direction and hence should be point of
buying the stocks. Further on 19th December 2018 there are again two consecutive
bearish signal implying to a potential selling point on the graph. On the final day there
is a buying signal of MACD line and hence a potential buying point but soon after
there is a formation of double top and hence one should sell the stocks before the
closing of the market as in the coming day there might be a chance of stock falling
significantly.

5.5. Colgate Palmolive


From the graph of Colgate Palmolive, the recent 4 days has been a trend of fall in its
stock prices. Though there are several buying signals of the MACD line one cannot
buy the shares as from the canals made, we cannot see an upward crossing of prices
and hence should wait for a buying signal after which the stock prices cross the upper
trend lines. On the 17th December 2018 towards the end of market closing there is
buying opportunity as signified by the MACD line but after the start of next day
trading, we can also observe a selling point signified by MACD line with start of a
downward momentum and hence is a potential selling point. On the 19th December
2018 with stock moving mostly flat there is bearish signal from MACD line which is
again a selling point after which the downward trend in the stock prices started.

5.6. eBay
From the graph of eBay over the 4 days it can be seen that on 17th December 2018
there is a buying signal by MACD line after which the stock prices have gained a little,
but soon after forms a double top hence the pattern signifies the start of downward
momentum of the stock which can be further confirmed from the signal of MACD line
crossing the signal line from top. For the eBay the 18th of December 2018 remained

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mostly remained flat and the deviations were still between the canal formed and hence
there were no significant buying or selling points in spite of the signals from MACD
line. On 19th of December 2018 at the start of the day there is a buying signal from the
MACD line and upward trend begins, but soon within few hours the MACD lines
started giving the signals of potentials selling points as marked in the figure and the
rising trend reversed. On the last day around 2:30 PM there is a buying signal from the
MACD lines as the stock had fallen significantly hence is a potential buying point.
Towards the end of the day the stock could be seen with a double top and hence could
signal a downward trend in the coming day.

6. Conclusion
From the above exercise we can conclude that the technical indicators and patterns are an
important tool for analysis of a stock from the market and trends points of view. It
completely relies on the past prices and thoughts of an investor but technical analysis for
stock price prediction are not the solely parameters to forecast the share prices.
In the exercise it was seen that the analysis over a year gave very few technical signals
which cannot be used for long term trading as it would rely on the fundamentals of the
company. While doing an analysis over 4 days the technical signals became much stronger
and the trend pattern could be seen because of it. One can rely on the buying and selling
signals from the technical parameters looking closely also into the patterns and trends in
the stock price development.
From the above exercise it was also seen that there are times when it is not possible in a
stock market to do a short-term trading as technical indicators ad trend patterns do not give
much room for transactions as it changes in very small time period.
With the Moving patterns or Moving averages one can predict the future stock prices or is
likely to reach value. One can also see here that the considering only a single technical
parameter can lead to a wrong decision hence one should look volume in conjunction with
MACD crossovers, and determining bearish or bullish signals considering the trend
patterns for buying and selling of stocks.
At the end we can also conclude that a fundamental analysis can tell us which share should
we buy and the technical indicators tells us when to buy those shares.

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7. References

http://www.investopedia.com

www.corporatefinanceinstitute.com

www.accountingtools.com

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List of Appendices

➢ Figure1 (One-year data Ford)

➢ Figure 2 (One-year data Bayer)

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➢ Figure 3 (One-year data Nike)

➢ Figure 4 (One-year data Walt Disney)

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➢ Figure 5 (One-year data Colgate Palmolive)

➢ Figure 6 (One-year data eBay)

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Figure 7 (Four days data Ford)

➢ Figure 8 (Four days data Bayer)

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➢ Figure 9 (Four days data Nike)

➢ Figure 10 (Four days data Walt Disney)

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➢ Figure 11 (Four days data Colgate Palmolive)

➢ Figure 12 (Four days data eBay)

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