9-1
Learning Objectives
Understand the difference between fundamental and
technical analysis.
Understand how technical analysis is related to patterns
of stock price movement.
Explain the types of charting that are used in technical
analysis.
Describe the use of key indicator series in attempting to
track the direction of the market.
Explain the efficient market hypothesis and the various
forms it can take.
Relate the efficient market hypothesis to fundamental
and technical analysis.
9-2
Technical Analysis
Technicians examine prior price and volume data to
determine past trends in the belief that they will help
forecast future ones.
Fundamental Analysis uses expectations of economic
conditions and company information to value an
asset (stock).
Technical analysis relies on charts and graphs of
internal market data.
Technicians believe that even when important
fundamental information is uncovered, it may not
lead to profitable trading because of timing
considerations and market imperfections.
9-3
Assumptions of
Technical Analysis
9-4
Presentation of
the Dow Theory
(Figure 9-1)
Dow Jones Industrial Average
Primary trend
Secondary
trend
Secondary
trend
9-6
9-7
Types of Charts
A bar chart shows the high and low price for a stock
with a horizontal dash to indicate closing price.
A point and figure chart emphasizes significant
price changes and the reversal of significant price
changes.
9-8
9-9
9-10
Buy Signal
0.40 or lower
Sell Signal
9-11
Breadth Index =
9-12
9-14
Market Anomolies
9-18