1. Stock Valuation – Technical Analysis Essentials of Corporate Finance Chapters 7 and 10 Materials Created by Glenn Snyder – San Francisco State University

2. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 2 Topics What is Technical Analysis? How Technical Analysis is Performed Technical Analysis vs. Fundamental Analysis Weak Form Market Efficiency  Arguments Against Technical Analysis Technical Research  What is a Chart?  Moving Averages  Indicators and Oscillators  Sources of Data Career Advice for a Technical Research Analyst

3. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 3 What is Technical Analysis? Technical Analysis is a method of analyzing and evaluating securities by using statistics generated by market activity  Historical Prices and Volume Technical Analysis analyzes the supply and demand of the market itself, rather than its components

4. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 4 How Technical Analysis is Performed Technical analysts do not try to determine a security's value, rather they use charts and statistical tools to find patterns that may predict future price movements Technical analysts try to identify trends, or which direction the market is headed  Who uses Technical Analysis? Hedge Funds Traders Portfolio Managers

5. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 5 Technical Analysis vs. Fundamental Analysis Technical Analysis  Historical Trends  Market Supply and Demand  Statistical Analysis  Short-Term Oriented Fundamental Analysis  Company and Industry Specific  Specific Company Valuation  Long-Term Oriented

6. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 6 Weak Form Market Efficiency  All past prices of a security are reflected in the current price  Weak Form implies “Searching for patterns in historical prices that are useful in identifying mispriced stocks will not work.” – Ross, Westerfield, Jordan (Chapter 10, pg. 318)  Can charts of historical prices lead to finding good investments?

7. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 7 Arguments Against Technical Analysis If past prices and performance are already reflected in current prices, then Technical Analysis cannot predict any future prices  If Technical Analysis can be used to predict future price movements, then the efficiency of the market can be called into question

8. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 8 What is a Chart? Source: Baseline A Chart is simply a graphical representation of a series of prices or volume plotted over time

9. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 9 Moving Averages A moving average is an average of the stock price plotted over a period of time  The moving average smoothes out daily price fluctuations to allow the Technical Analyst to better understand the trend of the security

10. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 10 Technical Research – Moving Averages Source: FactSet

11. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 11 Indicators and Oscillators There are two main types of Indicators:  Leading Indicators - calculations based on prices and volumes that precede stock price movements  Lagging Indicators - calculations based on prices and volumes that confirm stock price movements Oscillators are banded ranges within indicators that reflect overbought and oversold conditions

12. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 12 Sources of Data Investment professionals use sophisticated tools and databases  FactSet  Reuters  Baseline  Ned Davis Research But individuals can do some of this as well  Yahoo Finance Historical daily prices

13. February 26, 2007 Materials Created by Glenn Snyder – San Francisco State University 13 Career Advice for a Technical Research Analyst Strong Quantitative Skills  Statistics  Mathematics  Economics Strong Communications Skills  Written – Documentation and Write-ups  Verbal Team Oriented Look for companies that have an investment focus  Insurance Companies  Asset Management Companies  Investment Banks  Investment / Trading Companies