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Agec 420

• TradeSim

• Quiz 5 (review) and 6

• Fundamental Analysis

• Technical Analysis

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Markets

• Bot 1 MidAm Dec Corn @ 2.29¼, March 6

Close ? $ +/-

Tue., Apr. 2 2.24 ½ -$47.50

CBOT: http://www.cbot.com/

Cattle: http://futures.tradingcharts.com/chart/LC/42

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Fundamental Analysis

The use of information about supply, demand and other economic factors to forecast price.

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Fundamental Analysis

Typically involves:

a) gathering info on supply and demand• USDA reports, weather, political factors, substitutes

b) translating quantity information into a price prediction

• regression analysis

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Fundamental Analysis

• Is it useful or worthwhile for the small hedger or speculator?

Purcell, Chapters 3 --> YES

Malkiel, Chapters 5 and 7 --> NO

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Fundamental Analysis - Livestock

Long run: use both Supply and Demand information

Short run:use only Supply information

Cattle on Feed numbers

Weights

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Technical Analysis

The use of historical information on prices, price patterns, volume of trade etc to forecast future price movement

Typically involves use of:a) Charts

b) Other mathematical constructs - eg moving averages

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Technical Analysis

Is it worthwhile?

Purcell, Chapters 4 and 5 --> YES

Malkiel, Chapters 5 and 6 --> NO

Example: http://commoditytrader.net

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Efficient Market Theory

Except for long-run trends, stock prices are difficult (perhaps impossible) to predict

For futures prices there is no long run!

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3 Versions of the theory

• weak cannot predict future prices using past prices

• semi-strongcannot predict prices using all published

information

• strongcannot predict ….. using any information

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The Bar Chart

• Axes show price and time

• Vertical bars – price range (day or week)

• top of the bar --> highest price

• bottom --> lowest price

• tick on RHS: closing price

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Charts

Two basic “categories” of chart patterns

1. Trends and trend reversalsRationale:

bandwagon effects,

gradual release of information

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Charts

“Categories” of chart patterns

2. Resistance and support planes and the associated topping and bottoming patternsRationale: “investors memory”

sell when it gets back to the price they bought at

buy when it gets down to where they wish they had bought

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Charts - the argument against..

1. Trends: How do you know it’s a trend?

Once you recognize it, you’ve missed it!

2. Other patternsIf they had any value, anticipatory action would

destroy them!

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Evaluation

• A = very low --- E = very high

1. Effectiveness as a teacher

2. Clarity of presentation

3. Ability to explain

4. Availability outside class

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Mid-term Evaluation

• A = very low --- E = very high 5. Amount you have learned

6. Pace (A= too slow, E = too fast)

7. Difficulty (A=too easy, E=too difficult)

8. Overall evaluation

Put specific suggestions for improvement, complaints, etc on the back.