Financial Analysis - Stock Market - Gold prices

Chapter 1

BASIC ACCOUNTING TERMINOLOGY

1. Accounts Receivable – AR ^[1]

 The amount of money owed by your customers after goods or services have been delivered and/or used.

2. Accounting – ACCG

 Asystematic way of recording and reporting financial transactions.

3. Accounts Payable – AP

The amount of money you owe creditors (suppliers, etc.) in return for good and/or services they have delivered.  

4. Assets (Fixed and Current) – FA and CA

Current assets are those that will be used within one year. Typically this could be cash, inventory or accounts receivable. Fixed assets (non-current) are more long-term and will likely provide benefits to a company for more than one year, such as a building, land or machinery. 

5. Balance Sheet – BS

 A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner’s equity at a given time.

6. Capital – CAP

 A financial asset and its value, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities.

7. Cash Flow – CF

The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time. Having a positive cash flow is essential in order for businesses to survive in the long run.

8. Certified Public Accountant – CPA

 A designation given to someone who has passed a standardized CPA exam and met government-mandated work experience and educational requirements to become a CPA.

9. Cost of Goods Sold – COGS

 The direct expense related to producing the goods sold by a company. This may include the cost of the raw materials (parts) and amount of employee labour used in production.

10. Credit – CR

An accounting entry that may either decrease assets or increase liabilities and equity on the company's balance sheet, depending on the transaction

11. Debit – DR

 An accounting entry where there is either an increase in assets or a decrease in liabilities on a company's balance sheet.

12. Expenses (Fixed, Variable, Accrued, Operation) – FE, VE, AE, OE

The fixed, variable, accrued or day-to-day costs that a business may incur through its operations. Examples of expenses include payments to banks, suppliers, employees or equipment.

13. Generally Accepted Accounting Principles – GAAP

A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.

14. General Ledger – GL

A complete record of the financial transactions over the life of a company.

15. Liabilities (Current and Long-Term) – CL and LTL

A company's debts or financial obligations it incurred during business operations. Current liabilities are those debts that are payable within a year, such as a debt to suppliers. Long-term liabilities are typically payable over a period of time greater than one year. An example of a long-term liability would be a bank loan.

16. Net Income – NI

A company's total earnings, also called net profit or the “bottom line.” Net income is calculated by subtracting totally expenses from total revenues.

17. Owner's Equity – OE

 An owner’s equity is typically explained in terms of the percentage amount of stock a person has ownership interest in the company. The owners of the stock are commonly referred to as the shareholders.

18. Present Value – PV

The value of how much a future sum of money is worth today. Present value helps us understand how receiving $100 now is worth more than receiving $100 a year from now.

19. Profit and Loss Statement – P&L

 A financial statement that is used to summarize a company’s performance and financial position by reviewing revenues, costs and expenses during a specific period of time; such a quarterly or annually.

20. Return on Investment – ROI

A measure used to evaluate the financial performance relative to the amount of money that was invested. The ROI is calculated by dividing the net profit by the cost of the investment. The result is often expressed as a percentage. 

Chapter 2

STOCK MARKET

2.1 Introduction:-

Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity or stock, it all means the same thing.^[2]

As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock.

A stock is represented by a stock certificate. This is a fancy piece of paper that is proof of your ownership. In today's computer age, you won't actually get to see this document because your brokerage keeps these records electronically, which is also known as holding shares. This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically took the certificates down to the brokerage. Now, trading with a click of the mouse or a phone call makes life easier for everybody.

Another extremely important feature of stock is its limited liability, which means that, as an owner of a stock, you are not personally liable if the company is not able to pay its debts. Other companies such as partnerships are set up so that if the partnership goes bankrupt the creditors can come after the partners (shareholders) personally and sell off their house, car, furniture, etc. Owning stock means that, no matter what, the maximum value you can lose is the value of your investment. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets. ^[3]

There are two types of shares

1. Common share

2. Preferred share

2.2 How stocks are traded

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor.

The other type of exchange is virtual, composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you had to call around the neighbourhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers' market linking buyers and sellers.

2.3 The New York Stock Exchange

The most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal-Mart, is the market of choice for the largest companies in America. ^[4]

2.4 Bombay Stock Exchange:-

The Bombay Stock Exchange (BSE) is an Indian stock exchange located at Dalal Street, Kala Ghoda, Mumbai, Maharashtra, India. Established in 1875, the BSE is Asia’s first stock exchange. It claims to be the world's fastest stock exchange, with a median trade speed of 6 microseconds. The BSE is the world's 11th largest stock exchange with an overall market capitalization of $1.7 trillion as of January 23, 2015. More than 5500 companies are publicly listed on the BSE.

2.5 Stock prices:-

When a company goes public though an initial public offering (IPO), an investment bank evaluates the company's current and projected performance and health to determine the valueof the IPO for the business. The bank can do this by comparing the company with the IPO of another similar company, or by calculating the net present value of the firm. The company and the investment bank will meet with investors to help determine the best IPO price through a series of road shows. Finally, after the valuation and road shows, the firm must meet with the exchange, which will determine if the IPO price is fair.

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

The important things to grasp about this subject are the following:

1.      At the most fundamental level, supply and demand in the market determines stock price.

2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.

3. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices.

4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.

2.6 Buying Stocks:-

1. Using a brokerage

2. DRIPs and DIPs (Dividend Reinvestment Plan and Direct Investment Plan)

2.7 Reading a stock:-

Any financial paper has stock quotes that will look something like the image below:

                                    Fig 2.1 Reading Stock Data

Columns 1 & 2: 52-Week High and Low –

These are the highest and lowest prices at which a stock has traded over the previous 52 weeks (one year). This typically does not include the previous day's trading.

Column 3: Company Name & Type of Stock –

This column lists the name of the company. If there are no special symbols or letters following the name, it is common stock. Different symbols imply different classes of shares. For example, "pf" means the shares are preferred stock. ^[5]

Column 4: Ticker Symbol –

This is the unique alphabetic name which identifies the stock. If you watch financial TV, you have seen the ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, you always search for a company by the ticker symbol.

Column 5: Dividend per Share –

This indicates the annual dividend payment per share. If this space is blank, the company does not currently pay out dividends.

Column 6: Dividend Yield–

The percentage return on the dividend. Calculated as annual dividends per share divided by price per share.

Column 7: Price/Earnings Ratio –

This is calculated by dividing the current stock price by earnings per share from the last four quarters.

Column 8: Trading Volume –

This figure shows the total number of shares traded for the day, listed in hundreds. To get the actual number traded, add "00" to the end of the number listed.

Column 9 & 10: Day High and Low –

This indicates the price range at which the stock has traded at throughout the day. In other words, these are the maximum and the minimum prices that people have paid for the stock.

Column 11: Close –

The close is the last trading price recorded when the market closed on the day. If the closing price is up or down more than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind, you are not guaranteed to get this price if you buy the stock the next day because the price is constantly changing (even after the exchange is closed for the day). The close is merely an indicator of past performance and except in extreme circumstances serves as a ballpark of what you should expect to pay.

Column 12: Net Change –

This is the dollar value change in the stock price from the previous day's closing price. When you hear about a stock being "up for the day," it means the net change was positive.

2.8 Conclusion on Stocks:-

• Stock means ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares.
• Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim than shareholders. This is generally why stocks are considered riskier investments and require a higher rate of return.
• You can lose all of your investment with stocks. The flip-side of this is you can make a lot of money if you invest in the right company.
• The two main types of stock are common and preferred. It is also possible for a company to create different classes of stock.
• Stock markets are places where buyers and sellers of stock meet to trade. The NYSE and the NASDAQare the most important exchanges in the United States.
• Stock prices change according to supply and demand. There are many factors influencing prices, the most important of which is earnings.
• There is no consensus as to why stock prices move the way they do.
• To buy stocks you can either use a brokerage or a dividend reinvestment plan (DRIP).
• Stock tables/quotes actually aren't that hard to read once you know what everything stands for!
• Bulls make money, bears make money, but pigs get slaughtered!

Chapter 3

FINANCIAL ANALYSIS

Financial analysis is the process of evaluating businesses, projects, budgets and other finance-related entities to determine their performance and suitability.
There are two types of financial analysis: technical analysis and fundamental analysis. Technical analysis looks at quantitative charts, such as moving averages, while fundamental analysis uses ratios, such as a company's earnings per share (EPS).

3.1 Technical Analysis:-

Technical analysis is a method of evaluating securities by analysing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. ^[6]

3.1.1 Trends-

One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security market is headed.

                                                Fig 3.1 Upward Trend

                                                Fig 3.2 Mixed Trend

3.1.2Support and Resistance

Once you understand the concept of a trend, the next major concept is that of support and resistance.  There is ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).

                                    Fig 3.3 Support and Resistance

As you can see in Figure support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows).

3.1.3 Importance of Volume

Volume is simply the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security. To determine the movement of the volume (up or down), chartists look at the volume bars that can usually be found at the bottom of any chart.

                                                Fig 3.4 Volume

Volume is an important aspect of technical analysis because it is used to confirm trends and chart patterns. Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume. Therefore, if you are looking at a large price movement, you should also examine the volume to see whether it tells the same story.

3.1.4 Moving Averages

Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favour.

                                    Fig 3.5 Moving Averages

3.2 Fundamental analysis:

Fundamental analysis is a method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors.

Fundamental analysis serves to answer questions, such as: 

• Is the company's revenue growing?
• Is it actually making a profit?
• Is it in a strong-enough position to beat out its competitors in the future?
• Is it able to repay its debts?

One of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock's "real" value.

3.2.1 Intrinsic Value

The intrinsic value is the real value of the stock. Of course, the value at which the stocks sell is not its real value. It may be more or less than its intrinsic value.^[7]

For example, let's say that a company's stock was trading at $20. After doing extensive homework on the company, you determine that it really is worth $25. In other words, you determine the intrinsic value of the firm to be $25. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsicvalue.

The second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals.

To estimate the intrinsic value of stock and make an opportunity to sell with profit or buy at a discount, is actually a fundamental analysis.

3.2.2 The Qualitative factors:(that investors should consider before invest)

It consists:

1)      Business model (what actually company do?):

Unless you understand a company's business model, you don't know what the drivers are for future growth. So to understand the business model is important before any investment.

2)      Competitive advantage:

Another business consideration for investors is competitive advantage. A company's long-term success is driven largely by its ability to maintain a competitive advantage - and keep it. Investors should know that few companies are able to compete successfully for long if they are doing the same things as their competitors. 

3)      Management:

A company relies upon management to steer it towards financial success. Some believe that management is the most important aspect for investing in a company. It makes sense - even the best business model is doomed if the leaders of the company fail to properly execute the plan. 

4)      Corporate governance:

Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors and stakeholders.

The purpose of corporate governance policies is to ensure that proper checks and balances are in place, making it more difficult for anyone to conduct unethical and illegal activities. 

3.2.3 The Quantitative factors: (that investors should consider before invest)

1)      Costumers:

The costumer varies with different companies. The less no of costumers with larger portion of sale is the negative sign of business since reducing no of costumers will reduce the revenues dramatically.

2)      Market share

Understanding a company's present market share can tell volumes about the company's business.A competitive barrier serving to protect its current and future earnings, along with its market share. Market share is important because of economies of scale. When the firm is bigger than the rest of its rivals, it is in a better position to absorb the high fixed costs of a capital-intensive industry

3)      Industry growth:

One way of examining a company's growth potential is to first examine whether the amount of customers in the overall market will grow. This is crucial because without new customers, a company has to steal market share in order to grow.

4)      Competition:

Here simply look for the competitors. Here if no. of the competitors are higher, then it is difficult for firms to operate the environment.

5)      Regulation:

Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. As important as some of these regulations are to the public, they can drastically affect the attractiveness of a company for investment purposes.

3.2.4 Financial statements:

There are 3 main important financial statements are:

1)      Income statements

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. The income statement presents information about revenues, expenses and profit that was generated as a result of the business' operations for that period.

2)      Balance sheet:

The balance sheet represents a record of a company's assets, liabilities and equity at a particular point in time. The balance sheet is named by the fact that a business's financial structure balances in the following manner: 

Assets = Liabilities + Shareholder’s Equity

Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery and buildings. The other side of the equation represents the total value of the financing the company has used to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity represents the total value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years. 

3)      Cash flow statement:

The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year.

The cash flow statement is important because it's very difficult for a business to manipulate its cash situation. It's tough to fake cash in the bank. For this reason some investors use the cash flow statement as a more conservative measure of a company's performance. 

Chapter 4

GDP AND FACTORS AFFECTING DEVELOPMENT

4.1 GDP:

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well. GDP includes all private and public consumption, government outlays, investments and exports minus imports that occur within a defined territory. Put simply, GDP is a broad measurement of a nation’s overall economic activity.

The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

Gross domestic product can be calculated using the following formula:

GDP = C + G + I + NX

Where

C is equal to all private consumption, or consumer spending, in a nation's economy,

G is the sum of government spending,

 I is the sum of all the country's investment, including businesses capital expenditures and

NX is the nation's total net exports, calculated as total exports minus total imports (NX = Exports - Imports).

4.1.1 Real GDP and Nominal GDP

Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, expressed in base-year prices, and is often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP." Unlike nominal GDP, real GDP can account for changes in price level and provide a more accurate figure of economic growth.

4.1.2 Per Capita GDP

Per capita GDP is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another, because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to reflect an increase in productivity.

Fig 4.1 Nations with highest GDP

As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labour to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.

Fig 4.2 Growth rate of India’s GDP

India's gross domestic product advanced 7.1 percent year-on-year in the second quarter of 2016, slowing from a 7.9 percent expansion in the previous period and missing market expectations of 7.6 percent growth. It was the lowest reading since the fourth quarter of 2014, as private consumption expanded at a slower pace while fixed investment dropped further. GDP Annual Growth Rate in India averaged 6.08 percent from 1951 until 2016, reaching an all-time high of 11.40 percent in the first quarter of 2010 and a record low of -5.20 percent in the fourth quarter of 1979. GDP Annual Growth Rate in India is reported by the Ministry of Statistics and Program Implementation (MOSPI).

4.2 International Exchange Rates:-

International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency exchange rates can be floating, in which case they change continually based on a multitude of factors, or they can be pegged (or fixed) to another currency, in which case they still float, but they move in tandem with the currency to which they are pegged.

Knowing the value of your home currency in relation to different foreign currencies helps investors to analyse investments priced in foreign dollars. For example, for a U.S. investor, knowing the dollar to euro exchange rate is valuable when selecting European investments. A declining U.S. dollar could increase the value of foreign investments, just as an increasing U.S. dollar value could hurt the value of your foreign investments.

4.2.1 Factors That Influence Exchange Rates

Floating rates are determined by the market forces of supply and demand. How much demand there is in relation to supply of a currency will determine that currency's value in relation to another currency. For example, if the demand for U.S. dollars by Europeans increases, the supply-demand relationship will cause an increase in price of the U.S. dollar in relation to the euro. There are countless geopolitical and economic announcements that affect the exchange rates between two countries, but a few of the most popular include: interest rate decisions, unemployment rates, inflation reports, gross domestic product numbers and manufacturing information.

Some countries may decide to use a pegged exchange rate that is set and maintained artificially by the government. This rate will not fluctuate intraday, and may be reset on particular dates known as revaluation dates. Governments of emerging market countries often do this to create stability in the value of their currencies. In order to keep the pegged foreign exchange rate stable, the government of the country must hold large reserves of the currency to which its currency is pegged in order to control changes in supply and demand.

4.3 Relation between Gold, Oil price, stocks and Dollars:-

Gold price, Stock prices, US Dollar and Oil Prices are all asset prices with similar characteristics such as asset price inflation and momentum. They are significantly correlated with each other and with the business cycle. The price of all these assets as determined in the free markets is an important indicator of collective expectations of the future state of the world economy. What investors feel the future might be is reflected by the price of these assets. ^[8]

1. Gold: Gold is the most important store of value today and the most important components of the global economy since 1945. Gold's value remains fairly constant or increases overtime, it is hence used as an ideal hedge against inflation. People invest in gold because despite high inflation, its value does not depreciate
   Gold is also a safe haven asset. Increasing gold prices are a traditional indicator of a recession or a downturn in an economy. People run to the safety of gold when they think the value of other investments may go down in the future. Indians traditionally hold gold for the same reason, holding savings in gold immune’s people from depreciation in the value of money which they can later use to pay for healthcare etc.
2. US Dollar: The most important currency in the world today. Most of the trade in oil is invoicedin US Dollar. Whenever India buys oil from Iran, natural gas from Russia and electronics from China, we do not pay them in Rial, Rouble or Yuan, we pay them in Dollars. Similarly, when India sells leather to Australia, they pay us in Dollars. Dollar Rupee exchange rate is thus very important for both imports and export competitiveness. It goes high, consumers suffer, it goes low exporters suffer.
3. Oil Prices: India is a heavy importer of oil and oil is the most important energy resource. An increase in the global oil prices hurts the Rupee and the Indian economy.

4.      Stocks: Stocks are the most interesting of these four assets.  I call them the 'king of good times' .When the economy is doing  good or is expected to do good, their value rises, when the economy is doing bad, their value takes a dive. India's individual stock ownership rate is quite low, this adds an extra layer of risk to the Indian stock markets that are affected by global shocks.

An important thing to note about stock markets, while the price of the other three assets are determined by rational expectations, supply and demand etc., the price of stocks is determined by this

India is a very peculiar economy. It's highly integrated with the global economy but does not have enough leverage to effect it in any way. It is hence vulnerable to external shocks a lot, things that the government cannot control.

1. If the future expectations of the global economy are bad, people run to the safety of the US Dollar and Gold and sell stocks. The price of gold rises, the value of dollar rises against the Rupee. FII's and FDI's pull money out of the Indian stock market causing it to decline.
2. When the price of dollar rises, oil prices increase for India. This puts strain on the economy as inflation increases with energy costs. Because of high inflation people invest more in gold and less in stocks causing the stock markets to fall.
3. When the price of oil decreases such as the case now, energy costs reduce. This reduction may or may not cause an effect on the others. Ideally, this will reduce the costs of energy, we will spend less Dollars buying oil and the Rupee will strengthen.
4. When the price of dollar goes down, price of oil goes down reducing energy costs. Repeat point 3.

There are many other permutations of how one would react to the other but as a rule of thumb,

• Gold and oil are positively related. A rise in oil prices is an indication of bad times and gold prices rise correspondingly.
• Gold and stocks are negatively correlated. If stocks go up, gold goes down and vice versa.

These effects are in aggregate. If we break down the stock market into individual stocks, they react differently to change in oil and gold prices. An increase in oil prices causes the energy stocks to rise because of higher expected profits, an increase in gold prices will cause Gold ETF's and banking stocks to rise but other stocks might fall or remain stable. An increase in the value of the dollar might because IT stocks to rise because their revenue comes in Dollars but cause energy stocks to fall.
It is also useless to study the price of these assets in isolation as they heavily depend on the prevailing macroeconomic conditions. For example, when the business cycle is positive i.e. the GDP is rising, stocks rise while gold falls. If inflation is rising along with GDP, then both gold and stocks rise, stocks rise on FDI infusion and gold rises because of inflation. Add an external change in oil and this relationship becomes even complex.

And now if US Dollar increases then situation becomes more complex. [Not considering government taxes and RBI which may change from time to time and won’t impact more]

Chapter 5

CONCLUSION

• Technical analysis is a method of evaluating securities by analysing the statistics generated by market activity. It is based on three assumptions: 1) the market discounts everything, 2) price moves in trends and 3) history tends to repeat itself.
• Technicians believe that all the information they need about a stock can be found in its charts.
• Technical traders take a short-term approach to analysing the market.
• Support is the price level through which a stock or market seldom falls. Resistance is the price level that a stock or market seldom surpasses.
• Volume is the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security.
• A chart is a graphical representation of a series of prices over a set time frame.
• The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually.
• The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. It can be either linear or logarithmic.
• Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend.
• Trend compares a security's closing price to its price range over a given time period.

• Financial reports are required by law and are published both quarterly and annually.
• Audited financial reports have much more credibility than unaudited ones.
• The balance sheet lists the assets, liabilities and shareholders' equity.
• For all balance sheets: Assets = Liabilities + Shareholders' Equity. The two sides must always equal each other (or balance each other).
• The income statement includes figures such as revenue, expenses, earnings and earnings per share.
• The cash flow statement strips away all non-cash items and tells you how much actual money the company generated.

 No one can say for certainty how one or the other price might react to a change in the other. Modern financial markets function because of this very uncertainty as they trade based on expectations of how prices might react.

REFERENCES

1.http://www.rasmussen.edu/degrees/business/blog/basic-accounting-terms-acronyms-and-abbreviations-students-should/

2.https://en.wikipedia.org/wiki/Stock_market

3.http://www.investopedia.com/university/stocks/

4.http://www.marketwatch.com/topics/organizations/new-york-stock-exchange

5.http://www.investopedia.com/university/stocks/stocks6.asp

6.http://in.investing.com/technical/

7.http://www.investopedia.com/terms/i/intrinsicvalue.asp

8.https://www.quora.com/What-is-the-relation-between-Oil-prices-Gold-Stock-Markets-and-Dollar-prices