1. Contemporary Investments: Chapter 8 Chapter 8 TECHNICAL AND FUNDAMENTAL ANALYSIS: HOW THE PROS MAKE INVESTMENT DECISIONS How do technical and fundamental analysis differ? What are some technical indicators? How well does technical analysis work? What is the process of fundamental analysis? How well does fundamental analysis work?

2. Contemporary Investments: Chapter 8 Technical versus fundamental analysis The premise behind technical analysis The premise behind fundamental analysis The role of supply and demand

3. Contemporary Investments: Chapter 8 Understanding technical analysis Charting Dow theory Support and resistance levels More complex price patterns Trend lines Moving averages

4. Contemporary Investments: Chapter 8 Understanding technical analysis-Cont. Investor sentiment indicators Contrary opinion indicators Smart money indicators Market momentum indicators What is market momentum Advance/decline ratio Relative strength indicators

5. Contemporary Investments: Chapter 8 Figure 8.1 – Daily Closing Prices for 3M: September 2000-November 2002

6. Contemporary Investments: Chapter 8 Figure 8.2 – Daily Closing Prices for 3M: December 1999-November 2002

7. Contemporary Investments: Chapter 8 Figure 8.3 – Daily Closing Prices for 3M vs 200-Day Moving Average: Sep 2000-Nov 2002

8. Contemporary Investments: Chapter 8 Figure 8.4 – Relative Strength of 3M and Disney

9. Contemporary Investments: Chapter 8 Assessment of technical analysis Two minutes of fame on Wall Street

10. Contemporary Investments: Chapter 8 Why technical analysis might work Inadequate fundamental information Self-fulfilling prophecy How well do technical indicators work?

11. Contemporary Investments: Chapter 8 Figure 8.5 – Comparing the S&P500 to a Random Series

12. Contemporary Investments: Chapter 8 What is fundamental analysis Some historical background The process of fundamental (security) analysis An example of fundamental analysis in action

13. Contemporary Investments: Chapter 8 Assessing fundamental analysis Stock price reaction to analyst comments Track records of fundamental analysts Forecasting earnings Blown calls Success stores

14. Contemporary Investments: Chapter 8 Why fundamental analysis might fail Delta Airlines’ 1991 earnings Behavior of the analysts

15. Contemporary Investments: Chapter 8 Implications for investors Mixed track record Hold a well diversified portfolio Limits of human judgment Value of professional advice Think for yourself Be skeptical of anyone who claims to have a “system” The past is never a guarantee of the future