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Principles of Technical Analysis
Judging Individual Stocks by Technical Indicators
Technical Analysis: The use of charting techniques and quantitative measures to study stock market activity and other economic and financial indicators in order to forecast future stock price movements. (Little, 1988)
Use of charts of a stock's past price and volume movements can help predict its future short-term or intermediate-term price movements. (Hall, 1992)
Focuses on quantitative measures including:
1. Book Value [YF]: this is what each shareholder would get if the company were liquidated. Book value is a per share allocation of the company's assets minus liabilities plus a value placed on goodwill. If the market price for a stock is below the book value this is a buy signal (undervalued stock).
book value = shareholders equity
# of shares outstanding
2. Market-to-Book Value [C]: measures the value of a particular stock at the current price. The market price is the current price. Bull market per-share current price may exceed its book value. A high market-to-book ratio indicates that the stock is a poor value for the money. Growth companies, however, tend to have higher market-to-book values.
market-to-book value = current price
book value
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