Question

Que 1(i) // Briefly define each of the following and note the conditions that would suggest the market is technically strong.

1. Breadth of the market
2. Short interest
3. Relative strength index
4. Theory of contrary opinion
5. Head and Shoulders

     1(ii) Economic Analysis is generally viewed as an integral part of the top- down approach to security analysis. In this context, identify each of the following and note how each would probably behave in a strong economy.

1. Fiscal policy
2. Interest rate
3. Industrial production
4. Retail sales
5. Producer prices .

Answer 1

i-

a) The breadth of the market can be obtained by dividing the number of gaining stocks by the number of falling stocks. If the ration is greater than one then there is an overall gain in the market and if the ratio is less than one then there is an overall loss in the market.

b)Short interest is the number of short selling shares which have not been recovered.

c)relative strength index is a chart based on the recent trades of a stock market to show its historical strengths and weaknesses.

d)Head and shoulder popular chart pattern which shows the trend of the prices either from gain to loss or loss to gain and takes a shape of human head.

ii-

a) When government uses revenue, basically taxes and expenditure mechanisms to stabilize an economy is called the fiscal policy.

b)The interest rate is a macroeconomic indicator. Higher the interest rate higher is the cost of loans, borrowings, limited disposable income, less demand and curbed inflation and vice-versa.

c) Industrial production is the production of the industrial sector which includes mining, manufacturing, and utilities.

d) Final goods and services are sold at the end of the supply chain to the ultimate consumer is the retail sales.

e) Producer price is the price in which producer sales the product in the market