Sándor Bozsik (Ph.D) Miskolc University Hungary

In efficient market the NPV of all investment decisions is 0. Assumptions:  Information efficiency  Transaction efficiency  Allocation efficiency Consequence:  Price movement is a random walk.

 Weak form  Semi strong form  Strong form

 The price movement has a trend  The history repeats itself  The price perfectly reflects the effort of market forces.  The market has got memory.  The prices are sticky.

 Accumulation  Expansion  Dispersion  Exhaustion Discovering with support and resistance lines

 Graphic tools  Bar chart  Japanese candlestick  O-X diagram  Statistical tools  Moving average, EMA, MACD  Momentum, oscillator  Market strength, Money Flow Index  Combined tools  Fibonacci-lines  Bollinger-band  Elliott-wave

 Trend strengthening forms  triangles  Channels  Mast and flag  Trend changing forms  Double peak  Saucer  Key reversal or inland reversal  Head and shoulders  Spike

 Trading rule: if the shorter moving average crosses the longer one below – buying signal, on the contrary – selling signal  Grouping:  By term: 3, 7, 14 days  Simply, weighted or exponential  Direct or Indirect average  The longer is the average, the better follows the trend, the shorter is the average, the quicker gives a signal.

 Equation Stage analysis (Stan Weinstein) Stage 1 – the asset moves in a relative narrow band Stage 2 – developing stage – the asset price increases above the 200 and the 50 days EMA Stage 3 – Peak, the asset price is permanently above the 200 day EMA (profit realisation) Stage 4 – Price drop

 McClellan oscillator and summary index  Daily breadth – difference between the number of up-closing and down-closing shares – they are cumulated and an EMA with 10% and 5% adjusting parameter is created. The difference between them is the oscillator.  MACD – Difference between two EMA (12 days and 25 days) Then the 9 days EMA is taken. If it crosses the difference – trading signal.

 Oscillator  Momentum  Relative strength index (RSI)

 Measures the money in and out of the market  Equations:

What does it show? – Resistance and support level  f n =f n-1 +f n-1  The next figure is 1,618 higher than previous one (gold cut)  From 100% we get the followings:  100%; 61,8%; 38,2%; 23,6%; 14,6%; 9%  100% is the gap between maximum and minimum price in a given period

Richter

Usage: To determine the eruptions Based on: Relative support and resistance Moving average + standard deviation The larger is the volatility the larger is the width of band.

 Narrowing band projects meaningful change in price  If the price reaches the upper or lower limit, then the trend may go on.  If the price leaves one of the limit, but doesn’t reach the another one, then the current trend continues.  If the price breaks the moving average, then reaches the opposite limit.  The break out of the band is a sign of eruption.

 The market is efficient in weak form, but inefficient in semi-strong form.  Not everybody can evaluate properly the public information.  Analyse the fundamentals to determine the company’s intrinsic value.  Invest in medium or long term.

 Find a benchmark (similar company or industry average)  Calculate a market ratio  Collect the financial statements, market projections, data on macroeconomic circumstances  Analyse and compare the results  Try to explain the differences in market ratio

 Operated in the same industry  Located in similar region  Similar size  Similar financial risk profile

 P/E – Price per earning  Market to book value  P/EBITDA

 P/E – share price/net income per share  Value of shares:  Usage: manufacturing companies Where: P x – firm’s share price EPS X – firm’s earnings per share P/E* - benchmark’s P/E indicator d – adjusting factor DB X – number of share issued V X – value of equity

 DCF analysis  Real option models